Low-cost companies are the latest talk of the town in the world of business.
They’ve managed to push every limit in order to provide their clients with cheap services and goods while still remaining profitable.
Today we will look into the main characteristics of low-cost companies in any industry. If you wish to venture into the low-cost world, then this is a perfect first step into getting to know more about this new way of doing business.
Unbeatable pricing schemes
One of the main characteristics of low-cost companies. They’re all known for offering the cheapest price tags on their products.
The Irish multinational fast-fashion retailer Primark has a pricing policy that few other companies can compete with, much less equal. Their business model works with very reduced operational margins that are compensated by selling big volumes of clothing. In summer their minimum prices are 2 euros and the most expensive piece costs 17 euros. In winter, it goes from 1 euro for a piece of gloves to 35 euros for a coat.
Innovative solutions to the supply chain
To provide low prices, low-cost companies’ primary focus is the reduction of production costs. The way to achieve an important impact in the reduction of the consumer price is to innovate in terms of the logistics of every product.
Low-cost companies have revolutionized every sector in which they arrive by implementing innovational methods: looking for the cheapest raw materials available (soy is cheaper in Latin American countries, the same as textile products in Northern Africa), delocalization of their activities (production of goods in countries with cheap labor force), transportation (storage locations are the closest as possible to the actual stores).
The huge rise in popularity of low-cost companies is also due to powerful marketing departments that lay regular offers for clients.
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Low-cost companies have reduced their services to the most essential needed in order for clients to get for what they pay and nothing more.
Airlines are a perfect example of this. Low-cost airlines such as Ryanair or easyJet have changed the rules of traveling. They’ve marked the end of complimentary snacks and drinks; their sales channels are thru the internet only and even the check-in is sometimes done on automatic machines at the airport.
The same strategies apply to any other industry: low-cost hotels don’t offer minibars or gyms, fast-food restaurants don’t have specialized chefs in the kitchen, and they form every worker into all areas of the activity, even the cooking part.
The rise of second brands
Due to the many benefits of running low-cost companies, many big brands have opened low-cost branches that work as different brands. For example, Zara a company known for its success in the retail industry has ventured into the low-cost world with their fashion retail Lefties, which sells shirts at 0,95 euros and jeans at 9 euros.
Decathlon is another company that has initiated operations with a parallel brand named Koodza: very simplistic stores with auto-service sales and selling products at the most reduced prices possible, they also focus on internet sales, with up to 40% of their total income thru the online channels.
Focused on online services
Low-cost companies were born out of the consumer’s need to buy products at a reduced price. The economical crisis of 2008 produced changes in the behavior of consumers who saw how they couldn’t keep with the same spending rhythm of past years.
Companies that saw the opportunity to meet the new demands of consumers, turned their efforts into reducing the costs to the maximum in order to sell their services & goods at the lowest possible price. The digital landscape provided the perfect environment to showcase services and products: goodbye to physical stores and the huge fixed costs of electricity, water, security, or rent.
Now you can find anything online and this has resulted in an improved quality of life for the consumer as well who can get almost anything in the palm of their hands, thru a mobile phone connected to the internet.