What focused low cost strategy is and its advantages

What focused low cost strategy is and its advantages

Learn what focused low cost is and how small businesses can use it

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To fully grasp the meaning of a focused low cost strategy let us first begin by defining a market segment.

What is a market segment?

A market segment is simply a focused portion of a large homogeneous market that has similar characteristics or needs. Marketers use segmentation to identify potential customers and to increase sales.

An attempt to satisfy the needs of a large market all at once is at most times difficult and costly hence the reason why businesses prefer niche marketing. With a focused market or segment, businesses can tailor needs and services to suit particular demographics or geographic locations while cutting costs.

Since the size of a segment is deemed relatively manageable, marketers are also brought closer to their target audiences and can thus interact and understand them better.

However, there are cases where a business can identify a niche market for their product but later find out that other companies already exist in that market. They may also notice that prices offered by those competitors are similar to what they are offering.

So what next? Should a business compromise on value or price? If you decide to compromise on price, this means you are applying a low cost strategy to beat competition.

What is focused low cost strategy?

This is a strategy where businesses selling similar products in a given niche lower their prices in order to increase revenue and gain a competitive advantage.

Instead of compromising on value or throwing already scarce money into improving a product, lowering costs is a better way of attracting customers.

Buyers are always comparing prices whether they are billionaires, millionaires or just regular folks. Furthermore, if your business is offering the same product at affordable prices than everyone else then you are definitely guaranteed an increase in traffic towards your business.

Image for postFocused low cost strategy| Flickr| Joe

Some would argue that in terms of cost effectiveness or returns, that your business will be losing. That is not the case. For a focused low cost strategy to work well, all a business needs to do is cut costs.

Improving the company?s work flow by reorganizing production pipelines, using new technology and streamlining you supply chain can dramatically reduce cost of doing business. This also increases the efficiency level at which your business operates.

Outsourcing some services that also consume a lot of money is another way businesses can effectively reduce costs.

What are the advantages of low cost strategy?

  • Cut operational costs.
  • Increase sales.
  • Business growth opportunity.
  • Expand customer base.
  • Interact closely with target audience.

Conclusion

Successful businesses use focused low cost strategy to leverage sales and expand their reach. They appreciate and comprehend the need to segment a homogeneous market into smaller subgroups that are manageable.

Once they identify competition they adjust their prices in order to make it easy to reach their target audience. A focused low cost strategy helps companies stay in business while increasing sales.

With time customers shift their attention to your business because your prices are attractive.

By Odecho | Bizinfuse

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Comprehensive market segmentation definition

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