A low-cost provider strategy is attractive when there are price wars, huge supplies, little product differentiation, and high-volume buyers. The pitfalls include effects on profitability, competitive price-cutting, and compromising on quality of product.
A low-cost provider strategy is a market strategy in which a seller tries to ensure lower overall cost compared to rivals, and thus attract customers by under-pricing rivals.
A low-cost provider strategy is attractive and gives returns when there is aggressive price competition among rival sellers, when the products of rival sellers are identical owing to which supply is high, when there is little product differentiation between rivals, and buyers purchase in high volumes.
There are pitfalls to this as well, such as when aggressive lowering of cost affects profitability, if rivals are also capable of similar price cuts, and compromise is made on quality of product.
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