Other established players mount price wars, which only slashes their profits without disrupting low cost contenders’ lean business models. Yet many incumbents ignore these rivals, assuming-mistakenly-that extreme discounting will drive them out of business. How much room each will have depends not only on the industry and customers’ preferences, but also on the strategies traditional businesses deploy.įormidable price warriors-such as Germany’s Aldi supermarkets, India’s Aravind Eye Hospital, China’s Huawei telecommunications-have gobbled up established players’ lunches. There will always be room for both low-cost and value-added players. 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. 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. Some differentiate their products-a strategy that works only in certain circumstances. Price wars are not the answer, either: Slashing prices usually lowers profits for incumbents without driving the low-cost entrants out of business.Ĭompanies take various approaches to competing against cut-price players.

Ignoring cut-price rivals is a mistake because they eventually force companies to vacate entire market segments. Successful price warriors, such as the German retailer Aldi, 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, and backing low prices with superefficient operations.

Their obsession with familiar rivals, however, has blinded them to threats from disruptive, low-cost competitors. Companies find it challenging and yet strangely reassuring to take on opponents whose strategies, strengths, and weaknesses resemble their own.

Strategic war outlines pdf