CFA® Level 1: Low-Cost Competitive Strategy

Low-Cost Competitive Strategy

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Question

Which of the following is NOT typically true for a firm which has adopted the low-cost competitive strategy?

Answers

A. The firm will enjoy above-average rates of return only if its price premium based on its differentiation exceeds the extra cost of being unique.

B. None of these answers.

C. All of these answers.

D. The firm seeks to differentiate itself based on its distribution system, through some unique marketing approach, or by providing an important service to its customers.

E. The firm seeks to identify itself as unique in its industry in an area that is important to buyers.

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Explanations

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A. B. C. D. E.

The above are all true for a company that has adopted the differentiation strategy. With the low-cost strategy, the firm is determined to become the low-cost producer and, hence, the cost leader in the industry. Cost advantage might include economies of scale, proprietary technology, or preferential access to raw materials. The objective is to charge less for the product or service but still enjoy higher profit margins and returns on capital.

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