The Hard Discount Phenomenon. I wrote the Aldi case 1 with Professor Daniel Corsten given our interests in retailing and supply chain. However, after having written 40 cases and teaching notes previously, I was interested in seeing how one could write a case that could be flexible enough to be employed for multiple teaching purposes. Efficiency, of course, is what Aldi is all about!
You can reduce the cost of benefits you would offer.
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. From 28 M loss in to M profit in 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. A major portion of customer segment is price sensitive. You are willing to acquire new business capabilities. Ryanair 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.
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. 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 avng asset turnover ratio, impressive return on assets, because of returns and high growth rates, market capitalization is higher than industry leaders despite larger equity base.
Framework for responding to low cost rivals. ASK — will this company take away my present or future customers? ASK — are sufficient number of customers willing to pay more for the benefits my product offer? YES — Intensify differentiation by offering more benefits and over time 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. The Futility of Price Wars. Slashing prices lowers the profit for leaders without driving the low cost rivals out of market.
When leaders realize, they cannot win the price war, they opt for differentiation. Companies must be able to persuade customers to pay for benefits. Companies must bring cost 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 that it would not have enjoyed as an independent unit.
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. 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.Orica Switch to selling solutions Become exclusively a lowcost provider • No Synergies • Price sensitive consumer • leslutinsduphoenix.com to Fight Low Cost Rivals?
• Numerous differentiating factors • Consumer want the new benefit • E.g. Ryanair Airline.g.g. Strategies to Fight Low Cost Rivals Nirmalya Kumar Group VI Introduction The Sustainability of Low-Cost Business Title and content layout with list Add your first bullet point here Add your second bullet point here Add your third bullet point here 4 The Futility of Price Wars How to Fight Low Cost Rivals?
Many new entrants are armed with low-cost and low-price strategy and incumbents have to deal with this situation.
As number of newly-entering firms is increasing, cost war gets fierce. This article is asking whether following low-cost strategy works for existing companies or not.
Without synergies, corporations are better off trying to transform themselves into low-cost players, a difficult feat that Ryanair accomplished in the s, or into solution providers.
leslutinsduphoenix.com Strategies to Fight Low-Cost Rivals by Nirmalya Kumar Included with this full-text Harvard Business Review article: The Idea in Brief— the core idea The Idea in .
Strategies to Fight Low-Cost Rivals by Nirmalya Kumar Essay. Consumers want the benefits your new offerings would provide - Strategies to Fight Low-Cost Rivals by Nirmalya Kumar Essay introduction. You can reduce the cost of benefits you would offer.