Low-Cost Provider (Kmart’s Strategy)

A low-cost provider strategy is a technique that appeals to a broad section of buyers and takes on
the advantage of having lower overall cost compared to competitors. The company finding ways
to reduce costs in all aspects of this business until it is the cheapest of the competition drives this
strategy. The lower the prices are, the more price-sensitive buyers the company to take away
from its competitors. The company can always simply match its competitors’ lowest prices,
causing a price war. Either way, the company practicing this strategy efficiently will see
profitability increase. A few examples of cutting costs to achieve this profitability are attempting
economies of scale, using lower cost inputs that do not sacrifice quality, outsourcing non-
essential work to cheaper firms, and trying to operate one’s facility at full capacity.

A low-cost provider strategy is important for many reasons. Out of all five of the generic
competitive strategies discussed, this strategy may be the best choice for those who lack certain
qualities. The best way to describe the importance of the low-cost provider strategy would be to
compare it to the other four competitive strategies. First, we will look at the broad differentiation
strategy and the focused differentiation strategy. These strategies are good for companies if there
is something unique about their product, culture, or some other identifying characteristic.
However, a company does not always have the luxury of having a product, service, or company
that stands out in that way. This is when cost would be the right avenue to focus on. Next, there
is the focused low-cost strategy. This is similar to the low-cost provider strategy except for the
fact that it focuses on a specific target group of buyers that shop for their product or service.
When you are in a market that is filled by extremely different shopper attitudes, this strategy will
fail you- unlike the broad low-cost provider strategy. Finally, there is the best-cost provider
strategy that combines the low-cost strategies and the differentiation strategy. Unfortunately, if a
company cannot afford to lower prices and differentiate themselves from their competitors, this
strategy will also fail.