STRATEGIES TO FIGHT LOW COST RIVALS

BY NIRMALYA KUMAR

PRESENTED BY:
AMRITESH KUMAR
OSHIN BHATNAGAR
 OVERVIEW

• Companies have only three options: attack, coexist uneasily or become low-cost
players themselves
• It’s easier to fight the enemy you know than one you don’t
• The obsession with traditional rivals has blinded companies to the threat from
disruptive, low-cost competitors
• Germany’s Aldi supermarkets, India’s Arvind Eye Hospitals, Britain’s Direst Line
Insurance, online stock brokerage E*Trade, China’s Huawei, Sweden’s IKEA, Ireland’s
Ryanair, United States’ Vanguard are changing the nature of the competition
 SUSTAINABILITY OF LOW-COST BUSINESSES

• Ignoring cut-price rivals is a mistake because it eventually forces companies to

vacate entire market segments
• By slashing fares and cutting frills, entrants like Southwest airlines and Jetblue have
grabbed a chunk of America’s domestic air travel market from US airlines
• Low cost competitors focus on just one or a few customer segments; they deliver the
basic product or provide one benefit better than rivals do; and they back everyday
low prices with superefficient operations to keep costs down
 ALDI SUPERMARKETS

• Aldi sets up outlets on side streets in downtown areas and in suburbs, where real
estate is relatively inexpensive.
• The chain sells more of each product than rivals do, which enables it to negotiate
lower prices and better quality with suppliers (700 products in contrast to 25000
carried by traditional supermarkets)
• Stores display products in pallets rather than shelves in
order to cut restocking time and save money
• Several checkout lines, so wait times are short even during
peak shopping hours
• Aldi’s average markup is 13% as compared to 30% for most European retailers
• In 2006, Germans voted Aldi as third most trusted brand behind Siemens and BMW
• They earn small gross margins than traditional players do, but their business models
turn those into higher operating margins
 RYANAIR

• One of Europe’s leading low cost airline, which is one-seventh the size of British
Airways in terms of revenues (as reported in 2006)
• Operating Margins are three times as high as British Airways (as reported in 2006)
• Operating from secondary cities
• Stopped accepting booking through travel agents and
moved to direct bookings over the internet
• Stopped serving free meals and beverages on flights,
instead making them available for purchase
• Eliminated business class to focus on economy class and leisure customers
FRAMEWORK FOR RESPONDING TO LOW COST RIVALS