Beating Low Cost Competition How Premium Brands can respond to Cut-Price Rivals

by Ryans, Adrian

• ISBN13: 9780470742976
• ISBN10: 0470742976
• Edition: 1st
• Format: Hardcover
• Copyright: 2009-03-23
• Publisher: Wiley

Summary

Low cost competitors, who offer "good enough" products and services at very attractive prices, are currently significantly impacting the businesses of many leading companies, and some are starting to "move up" to challenge the traditional companies in their core markets. It's only a matter of time before most companies will feel the pressure from these aggressive, cut-price competitors. Beating Low Cost Competition offers a step-by-step structured approach to help executives in traditional companies with premium brands think through the options for responding to their low cost rivals and select the most appropriate strategy to win in their chosen markets.By examining a wide-ranging group of companies from around the world, Adrian Ryans provides numerous examples of how different companies in different industries have responded to low cost competitors and analyses the effectiveness of their strategies. He also discusses the leadership and cultural challenges that many companies are facing as they take steps to respond to their low cost rivals.Ultimately, the insights gained from this book will lead to better and more profitable business decisions.Adrian Ryans is Professor of Marketing and Strategy at IMD, Lausanne, Switzerland. He has designed and taught on executive programs for organizations in North America, Europe, Australia and Asia, including GE, Bank of Montreal, Medtronic, Deloitte, Borealis, Saurer, Vestas, IBM, Boeing, National Semiconductor, BioWare, ASML, Holcim, Varian, Hoechst, Amgen, Fluke, LSI Logic, Hutchison Port Holdings and Qualcomm. He has also acted as a consultant for a number of leading global corporations.

Author Biography

Adrian Ryans is Professor of Marketing and Strategy at IMD, Lausanne, Switzerland. He has designed and taught on executive programs for organizations in North America, Europe, Australia and Asia, including GE, Bank of Montreal, Medtronic, Deloitte, Borealis, Saurer, Vestas, IBM, Boeing, National Semiconductor, BioWare, ASML, Holcim, Varian, Hoechst, Amgen, Fluke, LSI Logic, Hutchison Port Holdings and Qualcomm. He has also acted as a consultant for a number of leading global corporations.

Table of Contents

Preface	p. xiii
Acknowledgments	p. xv
The Growing Challenge from Low Cost Competitors	p. 1
The Challenge is Real and It is Here to Stay	p. 3
Retailing	p. 5
Airlines	p. 6
Banking	p. 6
Fast-moving consumer goods	p. 7
Consumer electronics	p. 8
Business-to-business products and services	p. 9
In Many Industries the Major Threat is Coming from Asia	p. 11
Many Customers Prefer Good Enough Products and Services	p. 13
Low Cost Competition is Not All Bad News	p. 14
Understanding and Responding to the Challenge of Low Cost Competition	p. 16
Why the Threat from Low Cost Competition is Intensifying	p. 21
Value Propositions Have Three Core Elements	p. 22
Performance value	p. 23
Price value	p. 24
Relational value	p. 25
One core value proposition is usually emphasized	p. 25
The relative size of the different value segments may evolve over time	p. 26
Product category life cycles are getting shorter	p. 29
The Traditional Integrated Business Model is Disintegrating	p. 30
Three core processes underpin any business	p. 32
Giving balanced attention to all three core processes can lead to conflict	p. 34
Companies are leveraging the specialized players	p. 38
Companies with focused business models are playing a much bigger role in many industries	p. 41
Many more companies are opening their business models	p. 43
But there are significant risks in relying more on strategic partners	p. 45
Total solution coordinators are helping some companies leverage these networks	p. 46
Growing Support for Low Cost Competitors	p. 47
Low cost entrants sometimes have powerful supporters	p. 47
Customers are increasingly willing to buy from low cost players	p. 49
Challenge Questions	p. 50
Understanding How Low Cost Competitors Play the Game	p. 51
Ryanair	p. 51
Performance has been outstanding	p. 51
Value proposition is crystal clear	p. 52
Business model is innovative and focused	p. 53
Extreme focus on cost control	p. 57
Created a virtuous cycle	p. 58
So far ... so good	p. 60
ING DIRECT USA	p. 61
Borrowed with pride	p. 61
Appealing value proposition	p. 62
Early success	p. 64
Competition finally responds and ING DIRECT raises the stakes	p. 65
Learning from Low Cost Competitors	p. 66
Question every element of the traditional business model	p. 66
Have very simple and straightforward value propositions	p. 68
Avoid complexity at any cost	p. 69
Break through the communication clutter	p. 71
Be a cost innovator	p. 73
Remember that the customer is not always right	p. 76
Have the courage to drop prices significantly below competition	p. 77
Traditional Players Can Learn from Low Cost Competitors	p. 78
Challenge Questions	p. 81
Realistically Assessing the Threat	p. 83
Some Industries Are Less Vulnerable to the Low Cost Threat	p. 85
Why Companies Fail to Respond to the Low Cost Threat in a Timely Manner	p. 86
The low cost threat is underestimated	p. 86
The low cost threat often takes time to gain momentum	p. 88
Sometimes it is the second-order effects that have the biggest impact	p. 91
Realistically Assessing the Threat ... and the Opportunity	p. 98
"Beat My Business" exercises can be a useful tool	p. 99
Identifying actual and potential low cost competitors is key	p. 100
Understanding what is driving the strategy of the low cost competitors	p. 101
Core capabilities, distinctive resources and major gaps are often key drivers of a low cost competitor's strategy	p. 103
Low cost competitors can overcome critical gaps in creative ways	p. 104
How might a low cost competitor significantly enhance its position?	p. 106
Low cost competitors often follow similar strategies to improve their position	p. 108
It is a challenge to anticipate the moves of unconventional competitors	p. 110
Most Business Models Have Limited Reach	p. 113
Developing a Worst Case Scenario Can Provide a "Burning Platform"	p. 116
Framing the Financial Analysis as a Comparison of Two Futures is Critical	p. 118
Challenge Questions	p. 120
Confronting Low Cost Competitors in the Price Value Segment of the Market	p. 123
Competing at All Levels in the Market is Usually Not Necessary	p. 125
The Challenge Decision Requires Thinking Through Many Issues	p. 127
Arguments for Entering the Price Value Segment	p. 127
Good enough products can meet a real market need	p. 127
Opportunity to engage price value customers and develop better solutions to their needs over time	p. 128
Opportunity to grow with customers as their strategies evolve	p. 128
May provide an opportunity for "up-selling"	p. 129
Opportunity for synergies	p. 130
Gives traditional players some "control" over low cost competitors	p. 132
Arguments For Not Entering the Price Value Segment	p. 132
Conflicts with the traditional value proposition of the business	p. 132
Encourages cannibalization of high-end products	p. 133
Lacks resources and capabilities to successfully compete	p. 133
Value Chain Members Can Impact Decisions	p. 135
An Alternative Way to Provide a Price Value Solution to the Market	p. 136
Making the Decision in a Timely Manner	p. 137
Should the Price Value Business Be Independent?	p. 138
Integration has several potential advantages	p. 139
Advantages of independence often outweigh the advantages of integration	p. 141
Some Major Tactical Decisions	p. 145
Make versus buy	p. 145
Brand choice is a critical decision	p. 147
Developing new sales and distribution channels is often necessary	p. 149
Need to evolve channels over time	p. 150
Nokia Developed a Strong Position in the Entry Mobile Phone Segment	p. 151
Local Chinese competitors emerged quickly	p. 152
Nokia responded rapidly to the threat	p. 152
Nokia's results to date in the entry-level business have been very good	p. 153
Dow Corning Decided to Compete Aggressively for Price Seeking Customers	p. 153
Dow Corning faced a very tough situation in 2000	p. 154
Dow Corning launched a new business unit	p. 155
And the strategy seemed to work well	p. 156
Aer Lingus Played a Price Value Game in a Different Segment	p. 156
Competing in Ryanair's home market	p. 158
A difficult balancing act between cost cutting and differentiation	p. 158
Some initial successes but is it sustainable?	p. 160
Challenge Questions	p. 162
Avoiding Head-to-Head Competition with Low Cost Competitors by Playing a Different Game	p. 165
Enhancing Performance Value	p. 166
Electrolux was not well positioned for the emerging market environment	p. 167
Electrolux responded to the challenge on multiple fronts	p. 168
Electrolux has made some progress but the challenges still loom large	p. 170
Maintaining Performance Leadership is a Challenge Today	p. 172
Rising costs and shortening windows represent a significant issue	p. 172
Using open business models can help	p. 174
Performance value leadership requires constant innovation	p. 176
Getting beyond the strategic breakpoint can create real competitive advantage	p. 178
Stressing Relational Value	p. 180
Orica was facing total commoditization of its core products	p. 183
Orica began moving towards providing solutions for its customers	p. 184
Orica leveraged its global leadership position to stay ahead	p. 185
Tesco built relational value in a mass-market	p. 186
Tesco combated the threat of the hard discounters by creating customer value	p. 187
Tesco also managed its costs very effectively	p. 189
Tesco is the clear leader in the UK and is expanding aggressively into new markets	p. 191
Challenge Questions	p. 192
The Leadership Challenge	p. 193
Compaq Failed to Make a Successful Transition	p. 195
Meeting the Challenge of Low Cost Competition Often Requires a Corporate Transformation	p. 197
Numbers can support the need for change	p. 201
Building and Managing a Successful Price Value Business	p. 202
Product and service design challenge	p. 202
Marketing, sales and distribution challenge	p. 203
The cost control challenge	p. 205
Creating and Managing a Relational Value Business	p. 206
Designing an organization that will encourage building relational value	p. 208
Developing and using deep customer and market knowledge	p. 210
Inculcating a customer focused culture throughout the organization	p. 211
Building relational value is not a quick fix	p. 213
Challenge Questions	p. 216
An Even More Challenging Future	p. 219
Cost Innovation Must be Part of Everybody's Game	p. 220
The Threat From Low Cost Competition Will Intensify	p. 221
Traditional Companies Can Leverage Networks to Try to Stay Ahead	p. 223
Low Cost Competitors Face Their Own Challenges	p. 224
Anticipate Possible Future Competitive Moves and Proact	p. 226
Be Willing to Re-think Traditional Business Wisdom	p. 227
Put the Customer on Center Stage	p. 228
References	p. 231
Index	p. 243
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