BEST COST PROVIDER STRATEGY

The best-cost strategy is a method businesses can use to provide their

customers with high-quality products at affordable prices. When implemented
correctly, this technique can help companies stand apart from their competitors.
Learning about when to implement a best-cost strategy can help you keep your
customers satisfied.

Ex.Toyota Company of Japan followed the best-cost strategy for its Lexus cars to
beat Mercedes-Benz and BMW cars.

CHALLENGES OF BEST-COST STRATEGY

Difficulty executing

The best-cost strategy tends to be difficult to implement since it takes time to

develop better products. If a company is lacking the ability to provide an added
advantage and price advantage, it may have trouble competing with those using
differentiation or low-cost strategies. Finding the right combination of quality and
affordability is key to effectively implementing the best-cost strategy.

High up-front fees

Implementing a best-cost strategy requires expensive product development and

advertisement. In order to compete with high-end products, businesses must be
able to offer significantly lower prices. However, those who use an effective best-
cost strategy can see a return on investment that's notably less than the
development cost.

Positioning in the marketplace

One risk businesses take when applying the best-cost strategy is putting themselves
in the middle position in the marketplace. Those offering lower priced items may
attract clients with their lower prices. However, those with higher prices may
attract clients interested in higher quality products. With proper planning, a
business can position itself right where it wants to be.

Problems with multi-tasking

The best-cost strategy focuses on two components, it's challenging to multi-task

both priorities. You need to be able to lower your costs while also adding a unique
aspect to your product. Those that find the right balance between both components
are more likely to succeed.

BENEFITS OF BEST-COST STRATEGY

Satisfied customers

Businesses that use the best-cost strategy tend to appeal to clients with their
lower prices and are able to gain customer loyalty. This is because they offer their
customers a value that meets their expectations. Applying components similar to
the differentiation strategy also helps attract clients because it creates uniqueness
for your products and services.

Advantage over competitors

Using a best-cost strategy helps companies compete with other similar businesses.
When selling items that are similar to your competitors' products, using this
approach can help you surpass them in the market by appealing to consumers with
your better prices and unique products.

Lower overhead costs

When applying the best-cost strategy, organizations come up with innovative ways
to cut costs so that they can offer lower prices. Often this comes as lowering
overhead costs and reducing other fees. For instance, a food business may decide
to reduce the number of items on their menu so that they can offer higher quality
meals by reducing their overall food costs.

Adaptable business model

Businesses that use the best-cost strategy typically have an adaptable business
model. When changes occur in the environment, they can easily adapt to continue
providing high-end products at low prices. This is because they're not dependent on
one component, and they can brainstorm new, differentiating features that will set
them apart from the competition.

FUNCTIONAL LEVEL STRATEGY

Meaning
Functional level strategy refers to the development of distinct plans and
actions by an organization in order to enhance the performance and effectiveness
of its individual functional areas. The success of the organization significantly
relies on these functional areas, including marketing, operations, human resources,
finance, and research and development.
Each functional level strategy focuses on the unique challenges and
opportunities faced by a particular function. It outlines the goals, objectives, and
tactics that will enable the function to contribute to the achievement of the
organization’s broader strategic objectives.
 TYPES OF FUNCTIONAL LEVEL STRATEGY:
1. Marketing and Sales Strategy:
 This functional level strategy revolves around activities related to market research,
product positioning, pricing, promotion, and distribution.
 The goal is to identify target markets, understand customer needs, and develop
effective marketing and sales tactics to drive customer acquisition and retention.
2. Operations Strategy:
 In order to achieve optimal results in terms of both efficiency and cost
effectiveness.
 Operations strategy centers around enhancing the production and delivery
processes for goods and services. This calls for informed decisions concerning
capacity planning, supply chain management, quality control protocols, as well as
continuous process improvement initiatives.
3. Human Resources Strategy:
 Human resources strategy is concerned with managing and developing the
organization’s workforce.
 It encompasses areas such as recruitment, training, performance management,
employee engagement, and succession planning to attract, retain, and motivate
talented individuals.
4. Financial Strategy:
 Financial strategy encompasses the adept management of financial resources and
the effective allocation of funds.
 It entails crucial elements such as financial planning, prudent budgeting, quick
capital structure decisions, and strategic financial risk management. These aspects
are indispensable in guaranteeing the organizations’ enduring financial stability
and facilitating its continued growth.
 5. Research and Development Strategy:
 Research and development (R&D) strategy focuses on innovation and the
development of new products, services, or processes.
 It involves investment in R&D activities, collaboration with external partners, and
continuous improvement to stay ahead in the market.
KEY VARIABLES OF FUNCTIONAL LEVEL
STRATEGY
Formulating effective functional level strategies requires careful
consideration of various key variables that influence the decision-making process.
These variables help organizations understand the dynamic nature of their industry,
market, and internal capabilities. Let’s explore some of these key variables:
Market Segmentation:
 Market segmentation involves dividing the target market into distinct groups based
on common characteristics and needs.
 Understanding the specific segments allows organizations to tailor their functional
strategies to better meet the unique demands of each segment.
Competitor Analysis:
 Analyzing the competitive landscape is crucial for developing successful
functional level strategies.
 By evaluating competitors’ strengths, weaknesses, strategies, and market positions,
organizations can identify opportunities for differentiation and competitive
advantage.
Resource Allocation:
 Allocating resources effectively across different functional areas is essential for
achieving strategic goals.
 Organizations need to assess the availability and allocation of financial, human,
technological, and other resources to ensure optimal utilization and alignment with
functional strategies.
Technology Utilization:
 Embracing technological advancements is crucial for staying competitive in
today’s rapidly evolving business environment.
 Functional level strategies should consider how technology can enhance
operational efficiency, improve customer experiences, and drive innovation within
each function.
Talent Management:
 The success of functional level strategies heavily relies on the capabilities and
skills of the workforce.
 Effective talent management strategies encompass recruitment, training,
development, and retention initiatives to ensure that the organization has the right
people with the right skills to execute the functional strategies.
External Environment Analysis:
 Assessing external factors such as economic conditions, regulatory changes, and
market trends is vital for functional level strategies.
 By understanding the external environment, organizations can proactively adapt
their strategies to capitalize on opportunities and mitigate potential risks.
These key variables influence the formulation, implementation, and
adaptation of functional level strategies. They provide organizations with insights
and guidance for making informed decisions, prioritizing resources, and aligning
functional strategies with the overall strategic direction.
BENEFITS OF FUNCTIONAL LEVEL STRATEGY
Implementing effective functional level strategies can yield numerous
benefits for organizations. Let’s explore some of the key advantages that arise from
adopting functional level strategies:
1. Improved Operational Efficiency:
Functional level strategies prioritize optimizing the performance of
individual functions, which in turn boosts operational efficiency. This is achieved
by streamlining processes. Getting rid of redundancies. And maximizing resource
utilization. Consequently, costs are reduced and productivity is enhanced.
2. Enhanced Competitive Advantage:
Functional level strategies help organizations differentiate themselves
from competitors by leveraging their unique capabilities. By aligning functional
strategies with market demands and customer preferences, organizations can
develop competitive advantages in specific areas, such as product quality,
customer service, or technological innovation.
3. Optimal Resource Allocation:
They enable organizations to allocate resources effectively and
efficiently across different functions. By aligning resource allocation with strategic
priorities, organizations can ensure that resources are allocated to the areas that
provide the greatest impact and value.
4. Increased Coordination and Synergy:
It promotes coordination and collaboration among different functional
areas. When functions work together seamlessly, sharing information and aligning
efforts, it fosters synergy and improves overall organizational performance.
5. Adaptability to Market Changes:
They that are flexible and adaptable allow organizations to respond
swiftly to changes in the market environment. By monitoring market trends,
customer needs, and technological advancements, organizations can adjust their
functional strategies to capitalize on new opportunities and mitigate potential
threats.
6. Alignment with Overall Strategy:
They ensure that each function’s activities align with the organization’s
overall strategic direction. This alignment ensures that efforts are synchronized,
resources are directed towards strategic priorities, and all functions contribute to
the achievement of the organization’s goals.
By implementing well-defined functional level strategies,
organizations can leverage their internal capabilities, optimize resource allocation,
and align their functions towards common objectives. This leads to improved
operational efficiency, competitive advantage, and the overall success of the
organization.