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Strategies to Fight
Low Cost Rivals
Presented by-
Karan Verma
BBM 3rd
Sem.
167521
Nirmalya Kumar
Companies can only have
3 options : attack, coexist
uneasily, or become low
cost player themselves.
None of them is easy, but
the right framework can
help you learn which
strategy is most likely to
work.
Contents
• Overview
• The Sustainability of Low
Cost Businesses
• Strategies of successful
rivals
• The Futility of Price Wars
• When Differentiation
Works
• Case Studies
• Conclution
Overview
• Low cost competitor is disruptive and changing
the way of competition.
• Ignoring the Low cost rival is a mistake
Contd…
• According to him :-
– Not a Price war but product differentiation is
a good strategy.
– Don’t afraid to set few rules to cut the price
level
– Customers choose a brand who value for
money
– Differentiation is an important strategy to
fight Low Cost companies
The Sustainability of
Low-Cost Businesses
Strategies of successful
rivals
• Focus on just one or a few
consumer segments
• Deliver the basic product or
provide one benefit better than
rivals do
• Back everyday low prices with
superefficient operations to
keep costs down
The Futility of Price
Wars
• Not to conduct a unnecessary price war or
be panic.
• Should observe without getting in the
competition – “Wait and watch strategy”.
Case…..
When Europe’s supermarket chains launched low private
label water, it impacts on market leaders such as Evian,
Perrier, and San Pellegrino.
By acknowledging the threat compeititors usually try to
match or beat their prices. Later on, available evidence,
shows that price wars don’t work in favor.
When Differentiation
Works
When businesses finally realize
they can’t win a price war with
low-cost players, they try to
differentiate their products in a
last-ditch attempt at
coexistence.
Many forms
• Design cool products : Apple
and Bang & Olufsen
• Continually innovate in the
tradition : Gillette and 3M.
• Offer a unique product mix:
Sharper Image , Whole Foods.
• Brand a community : Harley-
Davidson and Red Bull.
• Sell experiences: Four Seasons,
Nordstrom, Starbucks
THE USEFULNESS OF
DIFFERENT STRATEGIES
• Strategies that help an established player coexist with low-cost
rivals can work initially, but as consumers become more familiar
with low-cost options, they tend to migrate to them.
• In the airline, PC, and retail industries, the segment choosing to pay
less for fewer benefits has grown rapidly. Dell’s and Southwest
Airlines’ shares of their industries, for instance, rose from around
3% in the early 1990s to 30% by 2006.
• That has left the traditional players scrapping with one another for
a shrinking market, charging ever higher prices to fewer and fewer
customers. These companies have to cope with smaller top lines
even though they still have high overhead costs.
Successful examples
Aldi
• Supermarket company
• In 2006, Germans voted Aldi the
country’s third most-trusted brand
• Aldi sells products far cheaper than
rivals
• Aldi’s average markup is 13% while
that of most European retailers is 28%
to 30%
• Size of its product range: relatively
smallsells more of each product than
rivals do
Ryanair Airlines
Objective: Convert Ryanair into one
of Europe’s leading low-cost airlines
Strategy: advertising prices
somewhat lower than those of
Ireland’s flagship carrier, Aer Lingus,
being 80% to 90% cheaper
CONCLUSION
• There will always be two kinds of consumers:
those who buy on the basis of price and those
who are partial to value.
• There will always be room for both low-cost
players and value-added businesses. How
much room each will have depends not only
on the industry and customers’ preferences,
but also on the strategies traditional
businesses deploy.
References
• Harvard bussiness reviews
-https://hbr.org/2006/12/strategies-to-fight-
low-cost-rivals
• https://www.mckinsey.com/...and.../when-
companies-underestimate-low-cost-rivals
• https://ais.ku.edu.tr/course/.../9_Strategies
%20to%20Fight%20LowCost%20Rivals.pdf
• Wikipedia
• Kotler principles of marketing
Any Questions

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Strategies to Fight Low Cost Rivals

  • 1. Strategies to Fight Low Cost Rivals Presented by- Karan Verma BBM 3rd Sem. 167521
  • 2. Nirmalya Kumar Companies can only have 3 options : attack, coexist uneasily, or become low cost player themselves. None of them is easy, but the right framework can help you learn which strategy is most likely to work.
  • 3. Contents • Overview • The Sustainability of Low Cost Businesses • Strategies of successful rivals • The Futility of Price Wars • When Differentiation Works • Case Studies • Conclution
  • 4. Overview • Low cost competitor is disruptive and changing the way of competition. • Ignoring the Low cost rival is a mistake
  • 5. Contd… • According to him :- – Not a Price war but product differentiation is a good strategy. – Don’t afraid to set few rules to cut the price level – Customers choose a brand who value for money – Differentiation is an important strategy to fight Low Cost companies
  • 7. Strategies of successful rivals • Focus on just one or a few consumer segments • Deliver the basic product or provide one benefit better than rivals do • Back everyday low prices with superefficient operations to keep costs down
  • 8. The Futility of Price Wars • Not to conduct a unnecessary price war or be panic. • Should observe without getting in the competition – “Wait and watch strategy”. Case….. When Europe’s supermarket chains launched low private label water, it impacts on market leaders such as Evian, Perrier, and San Pellegrino. By acknowledging the threat compeititors usually try to match or beat their prices. Later on, available evidence, shows that price wars don’t work in favor.
  • 9.
  • 10. When Differentiation Works When businesses finally realize they can’t win a price war with low-cost players, they try to differentiate their products in a last-ditch attempt at coexistence.
  • 11. Many forms • Design cool products : Apple and Bang & Olufsen • Continually innovate in the tradition : Gillette and 3M. • Offer a unique product mix: Sharper Image , Whole Foods. • Brand a community : Harley- Davidson and Red Bull. • Sell experiences: Four Seasons, Nordstrom, Starbucks
  • 12. THE USEFULNESS OF DIFFERENT STRATEGIES • Strategies that help an established player coexist with low-cost rivals can work initially, but as consumers become more familiar with low-cost options, they tend to migrate to them. • In the airline, PC, and retail industries, the segment choosing to pay less for fewer benefits has grown rapidly. Dell’s and Southwest Airlines’ shares of their industries, for instance, rose from around 3% in the early 1990s to 30% by 2006. • That has left the traditional players scrapping with one another for a shrinking market, charging ever higher prices to fewer and fewer customers. These companies have to cope with smaller top lines even though they still have high overhead costs.
  • 14. Aldi • Supermarket company • In 2006, Germans voted Aldi the country’s third most-trusted brand • Aldi sells products far cheaper than rivals • Aldi’s average markup is 13% while that of most European retailers is 28% to 30% • Size of its product range: relatively smallsells more of each product than rivals do
  • 15. Ryanair Airlines Objective: Convert Ryanair into one of Europe’s leading low-cost airlines Strategy: advertising prices somewhat lower than those of Ireland’s flagship carrier, Aer Lingus, being 80% to 90% cheaper
  • 16. CONCLUSION • There will always be two kinds of consumers: those who buy on the basis of price and those who are partial to value. • There will always be room for both low-cost players and value-added businesses. How much room each will have depends not only on the industry and customers’ preferences, but also on the strategies traditional businesses deploy.
  • 17. References • Harvard bussiness reviews -https://hbr.org/2006/12/strategies-to-fight- low-cost-rivals • https://www.mckinsey.com/...and.../when- companies-underestimate-low-cost-rivals • https://ais.ku.edu.tr/course/.../9_Strategies %20to%20Fight%20LowCost%20Rivals.pdf • Wikipedia • Kotler principles of marketing
  • 18.

Editor's Notes

  1. transportation, rent, marketing, and other overhead costs, and about 5% for staff costs