Question

A low-cost provider's basis for competitive advantage is:

a) Using an everyday low pricing strategy to gain the biggest market share.

b) Larger profit margins than rival firms'.

c) High buyer switching costs because of the company's differentiated product offering.

d) Meaningfully lower costs than competitors' but not necessarily the absolutely lowest cost/price.

Answer 1

A low-cost provider's competitive advantage comes from maintaining meaningfully lower costs than the competition, which allows them to gain market share by undercutting competitors' prices without necessarily needing the lowest expenses or imposing high switching costs.

Step-by-step explanation:

A low-cost provider's basis for competitive advantage is primarily associated with maintaining meaningfully lower costs compared to competitors. This approach may not always involve offering the absolute lowest costs or prices. As seen with companies like Amazon, effectively managing a production model and cost structure can result in the ability to undercut competitors' prices, even when additional factors like shipping are considered. Such a strategy might involve leveraging economies of scale, reputation, and brand recognition, as well as responding to market entries by competitors and adjusting offers and prices accordingly. The ultimate goal is to attract a significant market share through price-related strategies, providing consumers better or less expensive products without necessarily pushing for the largest possible profit margins or imposing high switching costs due to differentiation.