Group VI

Strategies to Fight
Low Cost Rivals
Nirmalya Kumar

Introduction

It is easier to fight the enemy

you know than one you dont.

They find it tough, challenging,

and yet strangely reassuring to
take on familiar opponents,
whose ambitions, strategies,
weaknesses, and even
strengths resemble their own.

Low cost companies are

emerging as new threats to
traditional business.

These companies have

different business model.

In America Dell, Southwest

airline,Walmart etc emerged as
low cost business.

Other businesses were Arvind

Eye Hospital in india
,Germanys Aldi,Britains Direct
Line etc.

The Sustainability of Low-Cost Business

Success of Low cost airlines viz.Southwest and Jetblue.
Sustainable business model of Aldi retail.
Small size shop,less products,Private labels.
High sale of each products led to low cost and high quality.
Agile supply chain
Outlets in the downtown and suburb led to less capital.
Does not pamper customer
No carry bag,Item display on pallets to reduce time &money.
Refundable amount charged for grocery carts
Several Checkout Lines,superfast machine led to good service.
Same price in whole country ,high brand value.
Only 13% in comparison with competitors 28-30% markup.

Title and content layout with list

Add your first bullet point here
Add your second bullet point here
Add your third bullet point here

The Futility of Price Wars

Wait and watch strategy for companies which market product for people at top
of pyramid eg. Europe supermarkets Private label water
Sometime low-cost rivals supports your business. Eg. Easycruise.
Price wars does not work in favor of incumbents.
Price below cost is illegal in many countries including USA.
Slashing price lowers the profits without driving the low-cost entrant out.
Copying critical element of low-cost players business model does not work.eg
Airline industry.

How to Fight Low Cost Rivals?

Numerous
differentiating factors
Consumer want the
new benefit
E.g.. HP

Differentiate your
offering

Add a low cost

business
Traditional business
become more
competitive
You can allocate
resources
E.g.. Xiameter

No synergies
Unique value with
solutions
E.g.. Orica

Switch to selling
solutions

Become
exclusively a lowcost provider
No Synergies
Price sensitive
consumer
E.g.. Ryanair Airline

When differentiation works?

When businesses finally realize they cant win a price war with low-cost players, they try to differentiate
their products in a last-ditch attempt at coexistence
Design cool products, as, say, Apple and Bang & Olufsen do.
Continually innovate in the tradition of Gillette and 3M.
Offer a unique product mix, like that of Sharper Image and Whole Foods.
Brand a community la Harley-Davidson and Red Bull.
Three key tactics of differentiation
smart businesses dont use these tactics in isolation eg. Bang & Olufsen
companies must be able to persuade consumers to pay for benefits eg Gillete,Target
condition necessary for a successful differentiation strategy is simple: Companies must bring costs and benefits
in line before implementing it.eg HP,BA

Dealing with Dual Strategies

When companies discover that the low-price customer segment is large, they
often set up low-cost ventures
Continental Lite, Delta Express, KLMs Buzz, SASs Snowflake, US Airways
MetroJet, Uniteds Shuttle were failures.
Companies should set up low-cost operations only if the traditional operation will
become more competitive as a result.eg financial companies
A two-pronged strategy delivers results only when the low-cost operation is
launched offensively to make moneynot as a purely defensive ploy to hurt lowcost rivals. Eg. Xiameter

Switch to solutions.
low-cost players turn incumbents basic products or services into commodities.
offering products and services as an integrated package, companies can expand
the segment of the market that is willing to pay more for additional benefits.
customer finds it difficult and costly to change suppliers.
the products price is less transparent.eg orica

Switch to low-cost models

Switching to a low-cost business model

means acquiring capabilities that are different
from the companys existing competencies.
Transformation of Ryan air unprofitable, high
cost airline to low cost airline.

Thank You

Click icon to add picture