In employing a low-cost provider strategy, a company must do a better job than rivals of cost-effectively managing internal activities and/or it must find innovative ways to eliminate or bypass cost-producing activities. Low-cost provider strategies work particularly well when price competition is strong and the products of rival sellers are very weakly differentiated. Other conditions favoring a low-cost provider strategy are when supplies are readily available from eager sellers, when there are not many ways to differentiate that have value to buyers, when the majority of industry sales are made to a few large buyers, when buyer switching costs are low, and when industry newcomers are likely to use a low introductory price to build market share.
1. Walmart has used its low-cost advantage to achieve success in the supermarket industry by
- underpricing rivals to attract price-sensitive buyers.
- charging a price roughly equal to those of lower-priced rivals.
- offering large promotional discounts instead of everyday value prices.
- offering differentiated merchandise at reasonable prices.
- refraining from using price cuts to steal sales away from rivals and avoid price wars.