2.8.2021

Cost Focus Strategy Explained

Written by Aine Hendron

cost focus

All companies need a business plan or strategy in order to perform well. There are many different elements that could be included in this business strategy, some of the most important being the pricing and marketing of products. 

In this article, we cover what a cost focus strategy is, how you can apply it to your business, and some of the advantages of this approach. 

What is a cost focus strategy? 

A cost focus strategy is when businesses attempt to attract customers based on price. Companies who use this strategy aim to offer the lowest price for their product on the market by undercutting their competitors’ prices. Companies that use this strategy often target a focused segment of the market. 

It also means focusing on reducing operational costs within the business as much as possible. For this reason, people often confuse cost focus with price focus. Price focused businesses look for ways to reduce the price that they pay for stock and try to sell items at the lowest price possible. They aim to be price leaders, but sometimes this can cost them their profit margin, so they don’t earn very much per sale. Cost focus, on the other hand, focuses on reducing costs, improving financial efficiency, and offering temptingly low prices too, widening the markup price of their product or service. 

Popular examples of companies that use this strategy include RyanAir, Primark, Wal-Mart, and McDonald’s. 

Why cost focus works

There are numerous benefits to using a cost focus strategy. 

Entice customers

The main benefit of cost focus is that customers feel that they are getting a bargain. As long as quality hasn’t been skimped to save the bottom line, customers will be attracted by a good value for money product or service.

Efficient supply chain 

A streamlined supply chain process will reduce costs associated with dealing with third parties, and intermediary businesses marking up the price. 

Low operational costs thanks to automation & technology

Technology takes the hard work out of figuring out where financial drains lie. Sync your software with your POS to simplify business management and improve organizational efficiency. 

Large quantity of stock 

Good economies of scale are achieved through buying in bulk and having a good relationship with suppliers.

Faster product turnover through process automation 

Standardizing operational processes means that it takes less time to produce items, thus reducing time-to-market. 

Improved training procedures

Another benefit of having an automated operational process is that it takes less time to train employees, and reduces the likelihood of employee error.

How to create a cost focus strategy

To apply a cost focus strategy without harming revenue, businesses must cut costs in other areas of business, such as marketing, labour, distribution, and packaging. Cost leaders must be stringent financially, and find ways to improve overall operational efficiency.

Let’s get into some of the ways you can apply a cost focus strategy to your business. 

Shop around

It may seem obvious, but shopping around can save your business a lot of money in the long run. It’s easy to assume that since you’ve been loyal to a certain supplier for a long time that they will reward you with the best prices. In reality, they are businesses too, so you may be able to find a lower price elsewhere, or at least ask your current supplier to price match. 

This goes beyond products, but services too. If your company relies on an external service provider for anything, be it marketing, accounting, or bookkeeping, you should regularly reflect on the cost of these services to ensure nobody else is offering the same quality service for a lower price. You could also save a lot of money by taking on these services yourself.

Implement advanced technology

Advanced sales and business technology can make the difference between a surviving business and a thriving business. Adopt a point of sale (POS) system that’s dedicated to your industry, and offers the customizations and add-ons that are personalized to the needs of your business. POS systems provide detailed reports on revenue and cost, designed to give business owners the opportunity to spot weaknesses and make actionable changes. 

Your POS system should be the backbone of your business, as it gives you the ability to collect customer payments and function in a high-sales environment, and innovate and reorganize your business processes with valuable insights and analytics.

High asset utilization

In the hospitality industry, high asset utilization refers to maximizing the use of the service within a certain period of time [1]. For example, a bar or restaurant that aims to increase table turnover time, therefore serving more customers that stay for a shorter period of time, as opposed to welcoming customers to sit for a few hours.

Or, a spa that completes a massage within one hour instead of two. Thus, more clients are served in less time by reducing the time for delivering the service.

In product-based industries, high asset utilization involves mass-producing standardized products with similar materials. This might look like a furniture company producing 100s of one model of chair that is made in one size and one colour, rather than producing 10s of custom-built chairs that follow unique dimensions and customer requests. It would be better still if the screws used to produce the chairs were the same needed to make tables too, meaning that inventory can be repurposed, and nothing is wasted. 

Increase production scale

High asset utilization and high production scale go hand in hand. Here, costs are reduced since items are purchased in bulk, leading to better prices with suppliers. As well as having a cost advantage, businesses that scale often have more negotiating power, more flexibility with pricing, and the ability to withstand competition more effectively. It also gives a company more power over suppliers, since the company’s orders will make a larger share of the supplier’s business operations [2]. 

This way, companies can offer lower prices to customers, and operate securely, knowing that they have a large inventory.

Reduce staff costs

Reducing staff costs doesn’t mean letting people go, it just means scheduling more strategically. The typical labour cost for a small business is between 20% and 35% [3]. Hospitality and retail business owners must walk the tightrope between making sure to schedule enough employees to support spikes in customer sales and traffic, and ensuring they don’t schedule too many people during hours where there aren’t a lot of sales. 

To do this, businesses must identify sales trends. Use your POS system to identify peaks and dips in foot traffic and sales, then schedule accordingly to support both your profit margin and the customer experience. POS systems like Epos Now provide detailed reports that show sales, current labour and profit, by specific times, days, weeks and months. Using these metrics, businesses can set wage targets as part of their overall budget, and make better business decisions. 

Get started with Epos Now

Simplify business management by investing in a powerful point of sale system. Epos Now was founded by business owners, for business owners. Therefore, we understand the challenges involved with pricing, strategic planning, and selecting the right technology for your business. 

With Epos Now POS software, you can manage all aspects of pricing, inventory, sales, and purchases right from your POS screen.

  • Track single item performance so you can forecast with accuracy
  • Receive stock alerts so you never miss a selling opportunity
  • Train staff within minutes on the user-friendly interface
  • Easily add, edit and bundle items to create new revenue opportunities
  • Create automatic purchase orders so you never run out of stock
  • Full barcode management. Import, update, and manage 1000s of products
  • Choose from over 100 app integrations for a truly personalised experience
  • Securely back up business data and access your back office from anywhere using the cloud.

Contact Epos Now to request a callback and free quote.

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