Strategies to Fight Low Cost Rivals
Differentiate your offerings
You can combine numerous differentiating factors.
Consumers want the benefits your new offerings would provide. You can reduce the cost of benefits you would offer.
HP’s restructuring has shrunk Dell’s cost adv from 20% to 10%. Customers have appreciated added benefits like instant deliver, ability to see
Your traditional operation will become more competitive.
Your low cost venture will make more money that it would have made as an independent unit. You can allocate adequate resources to the low cost unit.
Dow Corning’s Xiameter unit – low cost provider of silicone products sells only 350 of Dow’s 7000 offerings, doesn’t cannibalize the its parents sales. From 28 M loss in 2001 to 500 M profit in 2005 Switch to selling solutions
No synergies possible between existing enterprise and low cost unit. Integration of your products and services offer unique vale to customers. Australian mining company Orica – sold explosives to stone quarries. New service laser profiling rock faces to identify best places to drill holes. Become exclusively low customer cost provider
No synergies possible between existing enterprise and low cost unit. A major portion of customer segment is price sensitive.
You are willing to acquire new business capabilities.
Firms can either attack, co-exist uneasily or become low cost plays themselves. It is easy to fight traditional rivals due to similarities in their game plans and prowess but most companies overlook the threats from disruptive, low cost competitors. Coke fights Pepsi, sony with Phillips, avis with Hertz, P$G with Unilever. Amazon with Ebay etc.
Businesses that sell at very low prices as compared to the incumbents might go to bankruptcy (US Airlines) but the point worth considering is that, they quickly reemerge. They slash fares and cut thrills and eventually grab a chunk of market. E.g....
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