When Your Competition Delivers More For Less

Srini KumarMBA 260G

Marketing Strategy

Low Prices + High Quality• New entrants all manage this

combination which destroys margins• Old-school players need to change• Archetypal across many industries• These are known as “VALUE

PLAYERS”• Wal-Mart, Dell, Southwest Airlines

The Status Quo Is Scared• Incumbents face cost disadvantages• Incumbents do not have superiority• Began with the Japanese Invasion

– Automobiles and Consumer Electronics– Initially inferior quality but got better

• The competition is not just on PRICE• Service, Quality, Convenience• Compatibility, Design, Distribution

VALUE PLAYERS WANT TOSEIZE YOUR MARKET SHARE

• Keep costs in line• Find ways to differentiate yourself

– Identify opportunities left open by the competition’s business model

• Manage prices effectively– Wage a transaction-by-transaction

perception battle with competitors– Win over customers predisposed to pay

more; maximize the margins made

“GOOD ENOUGH”• Value players combine rock-bottom

prices with “good enough” quality• You have to do without frills and

reserved seating on Southwest• Once you make money attracting the

competitors’ customers you can drop your prices even more

• With low prices, value players attract customers who live farther away

Higher Sales Productivity• Improve your Value Proposition• Improve your Operating Model

– Low Costs mean Lower Prices + More Employees– Supply Chain and Marketing Productivity

• Communicate your Value Proposition• Build New Channels• Thrill and Empower Your Customers

– Customer Loyalty & Profitability; Evangelists• Create a Systematic Sales Process• Access New Sources Of Demand• Steal Sales From Your Competition

The Virtuous Value Cycle• More Customers

– Drop your prices to bring more on board– Undercut competition and advertise this

• More Profitability– Preserve margins and cut costs

• Better Economics– Greater volume = economies of scale– Mass marketing becomes viable

Obstacles to Value Players• Essential Resources Are Locked Up

– You can only build where there’s still land– Airlines need gates – a limited resource– Inexpensive labor; prime retail locations

• Information– Harder to communicate value proposition– The trend: falling information barriers

• Regulations– Laws constrain who can enter a market

• Customers– May not care for the value experience– The trend: greater desire for value

The New Competition• Consumer attitudes about price and

quality are permanently changed.• Companies differentiate frantically.• Many new products and services are

invented; new business models emerge.• Companies become good at execution.

– Managing price perception– Reducing Costs

• RAPID EXPERIMENTATION/INNOVATION

The Value Players’ Credo• Choose frequently-purchased item• Price aggressively• Let the customer compare easily• Have a systematically low-cost structure• Accept low margins to boost market share• Charge more for higher-end offerings to make up

for lost margins on low end• Focused advertising showcasing offers• Simple, prominent signage/slogans• Sustainable promotional initiatives

– Don’t undermine future sales for short-term customers