"Success Factors for a Low-Price Strategy
The list of companies who have succeeded with a low-price strategy tends to be short, but their strategies share a set of factors which help create and sustain that success.
1. They began with that strategy from day one: All successful low-price companies focused on low prices and high volumes from the very beginning. In many cases, they created radically new business models. I am not aware of any company having made a successful transformation from a high-price or mid-price position to a low-price one.
2. They are extremely efficient: All successful low-price companies operate with extreme cost and process efficiency, which enables them to enjoy good margins and profits even while charging low prices.
3. They guarantee adequate and consistent quality: With poor and inconsistent quality, success is unlikely, even if you offer low prices. Sustainable success requires adequate and consistent quality.
4. They have a strong focus on their core products: The term no-frills is often applied to airlines , but it could apply to companies such as Aldi or Dell as well. They do nothing that isn’t absolutely required by the customer. That saves costs, without putting the essential value to customer in jeopardy.
5. They have a high-growth, high-revenue focus: This creates economies of scale which they exploit to the greatest extent possible.
6. They are procurement champions: That means they are tough and forceful in their purchasing, but not unfair.
7. They have little debt: Only very rarely do they turn to banks or debt markets for financing. Instead they rely on self-financing or supplier credit.
8. They control as much as they possibly can: This means they carry only their own brands ( Dell , Ryanair , IKEA ); even Aldi ’s assortment is over 90 % private label. They also exercise strong control over the entire value chain .
9. Their ads focus on price: To the extent they even advertise at all, they focus almost exclusively on price ( Aldi , Lidl, Ryanair ).
10. They never mix their messages: Almost all of the successful “low price–high profit” companies stick to an “everyday low price” strategy rather than a “hi-lo” which relies on frequent temporary promotions.
11. They understand their role: Most markets have room for only a small number of “low price–high profit” competitors, often just one or two."
Trechos retirados de "Confessions of the Pricing Man: How Price Affects Everything" de Hermann Simon.