The Idea in Brief
Formidable price warriors—such as Germany’s Aldi supermarkets, India’s Aravind Eye Hospital, China’s Huawei telecommunications—have gobbled up established players’ lunches. Yet many incumbents ignore these rivals, assuming—mistakenly—that extreme discounting will drive them out of business. Other established players mount price wars, which only slashes their profits without disrupting low cost contenders’ lean business models.
How to fight low cost rivals? Kumar describes four alternative strategies: 1) Differentiate your offerings, 2) augment your traditional operations with low cost ventures, 3) switch to cross-selling products and services as integrated packages, and 4) become a low cost provider yourself.
Choose the strategy that best fits your company’s situation. For example, when Irish airline Ryanair realized it couldn’t compete with Aer Lingus using modest price discounts, it transformed itself from a high cost, traditional carrier into a low cost provider. Its revenues jumped 28% in just one year, and it boasted the highest punctuality rate of all the European airlines.
The Idea in Practice
Kumar offers four strategies for battling low cost rivals:
It’s easier to fight the enemy you know than one you don’t. With gale-force winds of competition lashing every industry, companies must invest a lot of money, people, and time to fight archrivals. They find it tough, challenging, and yet strangely reassuring to take on familiar opponents, whose ambitions, strategies, weaknesses, and even strengths resemble their own. CEOs can easily compare their game plans and prowess with their doppelgängers’ by tracking stock prices by the minute, if they desire. Thus, Coke duels Pepsi, Sony battles Philips and Matsushita, Avis combats Hertz, Procter & Gamble takes on Unilever, Caterpillar clashes with Komatsu, Amazon spars with eBay, Tweedledum fights Tweedledee.