How to Manage In a Market with Low-price Competitors - Come Out On Top
26 Feb 2018
When competing with low price competitors, one needs to come up with a strategy that should be accompanied by thorough research. If one seller decides, for instance, to lower their price to compete then at the end of the day, the prices will be too low, and one may end up recording losses. The research carried out should begin with both an objective analysis of where you stand with your competition and an analysis of market needs and preferences.
Use the results of your research to determine what segments you serve and which ones the low-cost competitor serves, to better understand whether you are serving the same segment of the market or different ones.
If you are actually serving different parts of the market, then stay the course. But if you believe the low-cost competitor will eventually enter the segment you serve, now is the time to prepare for when you and this competitor are attempting to win the same division.
Below are Some of the Steps to Consider
Differentiation is your first line of defense. It is fundamental to long-term success. Differentiation is defined as finding a significant point of difference that facilitates a sustainable competitive advantage. It is at the heart and soul of your positioning.
- Be customer-centric
Understand exactly what your customers want and what they will pay for it. Focus your efforts on excelling in those areas of demand.
- Price based on value
Value-based pricing is based on understanding the overall value of an offering to any one buyer. Establish a robust pricing process that will enable you to differentiate your pricing across distinct market segments.
- Create a low-price subsidiary
Consider the establishment of a low-price subsidiary or finding a partner that has a low-price offering. This strategy will be successful only if you will become more competitive as a result of having set up the low-cost subsidiary.
- Sell a solution, not a product.
When several low-cost players enter a market, the result could be the commoditizing of the products in question. Be prepared for that possibility by thinking in terms of solutions rather products.
Low-cost competitors can be right under your nose. A current partner, a supplier or even a contract manufacturer can walk away with the principal elements of your value chain, establishing its operations on a modest scale and positioning itself to take more value later by moving upstream or increasing its leverage. That same contract manufacturer may cross boundaries to apply what it learned in one industry to break into another.
Many companies fail to recognize the significance of a low-cost competitor until it’s too late. For one reason, because they are too wedded to the status quo, they develop their strategies in functional silos and according to internal objectives without considering the entire spectrum of competitor strategies or changes to the external environment. In other words, firms make a grave mistake by benchmarking their position against competitors’ existing value chain. In a world of the extended enterprise, analyzing competitors’ capabilities is like trying to hit a target capable of rapid transformation. With more diffuse industry barriers, low-cost rivals are outsourcing some parts of their value chain and building partnerships with others. This obscures the real competitive picture and multiplies the number of benchmarking variables.
The best way to identify and thwart a low-cost rival is to adopt its mindset, anticipate its next competitive move and measure your costs against its costs. This requires digging deeper than the qualitative, theoretical approach of war-gaming or the internally focused tools of business-process redesign and lean manufacturing. The goal is to defeat the low-cost rival by compelling actions that allow you to become more competitive and grow or maintain an advantageous position in your market segment.