A low-end competitor is like a shark. It can appear unexpectedly from below, churning the waters by offering big savings to customers, taking a bite out of comfortable profits and disrupting established ways of doing business. And it can leave a wake of destruction: devastated industry leaders, flattened profits and disgruntled customers.
No company is immune to such an attack, and most managers will face at least one — and possibly many — during their careers. If there is a defense, it lies in knowledge: knowing what form the attack is likely to take and under what conditions. More importantly, managers should be aware of their different options, including the response that is most likely to restore market calm in the least disruptive way.
The Dynamics of a Low-End Attack
Every industry has one or more standard leaders: large competitors that set the benchmarks for performance and price. General Motors fills this role in the automotive industry, Hewlett-Packard in personal computers and Kellogg in breakfast cereals. Typically, a standard leader sells a mix of products that roughly mirrors that of the overall industry, and its price points are followed by other companies to within a narrow range. Together, the standard leaders of a market control a large chunk of the action: usually from 35% to 80% of total industry sales.
It is these standard leaders — or, more... To read the complete article, login or sign-up using the form below.
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