Chapter 2
Low-Cost Strategies I:
Key Elements of a Low-Cost Provider Strategy
Questions for Discussion:
1. Provide examples of cost-cutting by retailers that are too drastic.
Students should cite such examples as
2. How difficult is it for a conventional supermarket to copy Aldi’s cost-cutting strategy?
Aspects of Aldi’s strategy that could be copied by a conventional supermarket include
• Greater emphasis on private label.
• Everyday low pricing to reduce advertising costs.
Aspects of Aldi’s strategy that could not be easily copied by a conventional supermarket
include
• Reducing selection to levels of Aldi.
3. Explain the impact of Aldi’s 15-16 percent cost advantage on consumers and competition.
Aldi is able to charge 15–16 percent less than its conventional competitors yet derive their
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Aldi can easily make a profit at price levels where its conventional competitors would lose
money. These competitors cannot afford to match Aldi’s prices.
4. Why does a retailer have to make continuing efforts to keep costs low?
A retailer has to make continuing efforts to keep costs low because
• The retailer has to be aware of cost creep[md]costs slowly escalating until they reach
5. Discuss the causes and examples of bad costs listed in Table 2.1 (p.33).
Causes and examples of bad costs include
• Overcentralization of operations. Using the same strategy in all locations. This
strategy ignores regional differences.
6. Why does Costco stick to its 14 percent markup rule for branded items and 15 percent
markup rule for private label items?