Final answer:
A low-cost provider strategy is compelling when buyers face high switching costs, value can be delivered in various ways, buyer needs are diverse, buyers lack bargaining power, and product differentiation is difficult to achieve. This strategy helps in attracting price-sensitive customers and sustaining competitive advantage through cost leadership.
Step-by-step explanation:
A low-cost provider strategy becomes more appealing and competitive when:
- Buyers face high switching costs from one seller to another.
- Value can be delivered in various ways through different features and attributes.
- Buyer needs and uses of the product are diverse.
- Buyers lack strong bargaining power.
- It's difficult to achieve meaningful product differentiation.
In these situations, a low-cost provider can attract price-sensitive customers and maintain competitive advantage. By offering lower prices, the provider can increase market share and can potentially capitalize on economies of scale, which further reduces costs, reinforcing the low-cost position. Such a strategy is especially effective if the provider can avoid a price war by maintaining cost leadership, thus sustaining profitability while competing on price.
A low-cost provider strategy becomes increasingly appealing and competitively powerful when buyers incur high costs in switching their purchases from one seller to another. If buyers face significant costs or barriers to switching, they are less likely to switch to a different seller even if that seller offers a lower price. This gives the low-cost provider a competitive advantage.
For example, let's say there are two restaurants offering similar meals at different prices. If buyers need to travel a long distance to reach the cheaper restaurant, they may be discouraged by the transportation costs and choose to stick with the more expensive restaurant instead. In this case, the low-cost provider strategy would not be as effective.