Risks associated with being a low cost operator

There are a number of risks associated with being a low cost operator.

  • A cost leadership strategy may have the disadvantage of lower customer loyalty, as price-sensitive customers will switch between operators if they offer a better price.
  • A reputation as a cost leader may also result in a reputation for low quality, which may make it difficult for a firm to rebrand itself or its products if it chooses to shift to a differentiation strategy in future.
  • Technological change may nullify past investment or learning.
  • Low cost operators may be so focused on cost and their specific business model, they may be unable to modify their offer and respond to changes in the market.
  • The business model is highly dependent on the costs of the raw materials and labour, over which there may be limited control.
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