Nofie Iman

Companies find it challenging and yet strangely reassuring to take on opponents whose strategies, strengths, and weaknesses resemble their own. Their obsession with familiar rivals, however, has blinded them to threats from disruptive, low-cost competitors. Successful price warriors are changing the nature of competition by employing several tactics:

• focusing on just one or a few consumer segments
• delivering the basic product or providing one benefit better than rivals do
• backing low prices with superefficient operations

Ignoring cutprice rivals is a mistake because they eventually force companies to vacate entire market segments. Price wars are not the answer, either: slashing prices usually lowers profits for incumbents without driving the low-cost entrants out of business.

Nirmalya Kumar, a professor of marketing at London Business School, wrote on recent Harvard Business Review Magazine that companies take various approaches to competing against cut-price players.

Some differentiate their products — a strategy that works only in certain circumstances. Others launch low-cost businesses of their own, as many airlines did in the 1990s — a so-called dual strategy that succeeds only if companies can generate synergies between the existing businesses and the new ventures, as the financial service providers HSBC and ING did.

Without synergies, corporations are better off trying to transform themselves into low-cost players, a difficult feat that Ryanair accomplished in the 1990s, or into solution providers.

And afterall, low-cost players will continue to mushroom, and some will succeed. However, there will always be two kinds of consumers: those who buy on the basis of price and those who are partial to value. Therefore, 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. If incumbents don’t take on low-cost rivals quickly and effectively, they can blame no one for their failure but themselves.

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