Get help now

Strategies to Fight Low-Cost Rivals by Nirmalya Kumar

  • Pages 4
  • Words 810
  • Views 374
  • dovnload



  • Pages 4
  • Words 810
  • Views 374
  • Academic anxiety?

    Get original paper in 3 hours and nail the task

    Get your paper price

    124 experts online

    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 delivery, ability to see.

    Your traditional operation will become more competitive. Your low-cost venture will make more money than it would have made as an independent unit. You can allocate adequate resources to the low-cost unit. Dow Corning’s Xiameter unit – a low-cost provider of silicone products that sells only 350 of Dow’s 7000 offerings, doesn’t cannibalize its parent’s sales. From 28 M loss in 2001 to 500 M profit in 2005

    Switch to selling solutions

    No synergies are possible between existing enterprise and low-cost units. Integration of your products and services offers unique value to customers. Australian mining company Orica – sold explosives to stone quarries. New service laser profiling rock faces to identify the best places to drill holes. Become an exclusively low customer cost provider

    No synergies are possible between existing enterprise and low-cost units. A major portion of the 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 the market. E.g. Southwest airlines, JetBlue, Aldi supermarket in Germany, and other parts. The financial calculations of low-cost players are different from the established ones. They earn smaller gross margins but their business models turn those into higher operating margins.

    Higher than having an asset turnover ratio, impressive return on assets, because of returns and high growth rates, market capitalization is higher than industry leaders despite a larger equity base. Framework for responding to low-cost rivals.

    ASK – will this company take away my present or future customers? NO – watch but don’t take on the new rival. YES – don’t launch price war, instead, try and increase product differentiation.

    ASK – are a sufficient number of customers willing to pay more for the benefits my product offer? YES – Intensify differentiation by offering more benefits and overtime restructure your company to reduce the price of benefits you offer. NO – Learn to live with the smaller company. If possible merge or take over rivals.

    ASK – if I set up a low-cost business, will it generate synergies with my existing business? NO – Switch to selling solutions or transform into a low-cost player. YES – Attack your low-cost rival by setting up a low-cost business.

    Low-cost players stay ahead in the market because consumer behavior work in their favor, new low-cost entrant pose stiffer challenge compared to the traditional ones. e.g. – JetBlue’s entry is a concern for Southwest.

    The Futility of Price Wars.

    Even when market leaders copy the critical elements of the low-cost rivals’ business models, they are unable to match their prices. e.g. – Internet booking for airlines doesn’t deliver the kind of cost reductions to traditional airlines that they do to low-cost carriers. Slashing prices lowers the profit for leaders without driving the low-cost rivals out of the market.

    When Differentiation works: when leaders realize, they cannot win the price war, they opt for differentiation.

    Differentiation approaches:

    • Design cool products. e.g. – Apple
    • Continually innovate. e.g. – Gillette, 3M
    • Offer a unique product mix. e.g. – Sharper Image, whole foods. Brand a community. e.g. – Harley Davidson
    • Sell experiences. e.g. – Starbucks, Nordstrom.

    Differentiation works when: smart businesses don’t use these tactics in isolation. Companies must be able to persuade customers to pay for benefits. Companies must bring costs and benefits in line before implementing it.

    Dealing with dual strategies

    Companies should set up low-cost operations only when the traditional ones will become competitive as a result and new business will derive some benefits that it would not have enjoyed as an independent unit. E.g. – First Direct, ING Direct. Low-cost business units should use a unique brand name like HSBC’s First Direct. The subsidiary should be housed separately.

    A two-pronged strategy delivers results only when the low-cost operation is launched offensively to make money and not as a purely defensive ploy to hurt low-cost rivals. Eh – Dow Corning’s creation of Xiameter.

    Switching to Conquer

    If there is no synergy between traditional and low-cost businesses, there are two other options to deal with the low-cost rivals. Start selling solutions. E.g. – Orica’s blasting solutions Convert into the low-cost player. E.g. – Ryanair.

    This essay was written by a fellow student. You may use it as a guide or sample for writing your own paper, but remember to cite it correctly. Don’t submit it as your own as it will be considered plagiarism.

    Need a custom essay sample written specially to meet your requirements?

    Choose skilled expert on your subject and get original paper with free plagiarism report

    Order custom paper Without paying upfront

    Strategies to Fight Low-Cost Rivals by Nirmalya Kumar. (2016, Aug 12). Retrieved from

    Hi, my name is Amy 👋

    In case you can't find a relevant example, our professional writers are ready to help you write a unique paper. Just talk to our smart assistant Amy and she'll connect you with the best match.

    Get help with your paper
    We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy