What condition may cause a low-cost strategy to fail?

A low-cost strategy typically hinges on the ability of a company to produce goods or services at a lower cost than competitors while still maintaining acceptable quality levels. If a company exceeds the average industry cost in manufacturing, this creates a significant disadvantage. This condition undermines the very foundation of a low-cost strategy, which relies on minimizing expenses across the board to offer competitive pricing.

When manufacturing costs are higher than the industry average, the company will struggle to maintain lower prices than its rivals. This not only erodes profit margins but can also drive customers to alternatives that offer similar quality at a lower price. The failure to control production costs directly impacts the viability of a low-cost strategy, leading to decreased market share and profitability.

In contrast, focusing solely on premium quality may hurt a company pursuing a low-cost strategy, but it reflects a different strategic approach rather than a failure of the low-cost model itself. Similarly, employing more labor than competitors could potentially increase costs, but if managed effectively, it might still align with a low-cost structure. Raising prices to match high-end offerings is counterproductive for a low-cost strategy since it contradicts the principle of competing primarily on price. Thus, exceeding industry averages in manufacturing costs fundamentally compromises a low-cost strategy's effectiveness.