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> Low-cost leader can certainly be a sustainable competitive advantage. Think GEICO vs. All State. That makes my point even more dramatically, that being the l
by dharmon 9y ago
> Low-cost leader can certainly be a sustainable competitive advantage. Think GEICO vs. All State.
That makes my point even more dramatically, that being the low-cost leader doesn't have to be a race to the bottom if you have some structural advantage. That it can last. Startup or not is irrelevant.
- bdcravens 9y agoYes but OP is talking about building from scratch AND being a low-cost leader. GEICO over the years has pivoted (they originally started as Government Employees Insurance COmpany) and they had the advantage of the business and resources they had already built up. Today, they're owned by Berkshire Hathaway. They spend millions on marketing. So yeah, some serious structural advantage that's irrelevant to OP.
- dharmon 9y agoAh, I see the confusion. The structural advantage is that they sell directly. They don't use the intermediate agencies who are collecting commissions. That, combined with specifically going after certain customers (originally govt. employees, as you pointed out), allows them to undercut their competitors like All State. But not just undercut, undercut in a way that All State cannot match. The last part is key, and what makes it a long-lasting competitive advantage. To bring it back to OP. If their competitor has built-in high costs, there is an opportunity here. That's why I said at the end they need to figure this out. If the competitor just has fat margins then they can easily cut prices, but if they have some high headcount, or maybe some legacy stuff that costs a lot, then can't match the low price without losing money.