Reference no: EM132201897

WHEN COMPETITORS DELIVER MORE FOR LESS

Companies offering the powerful combination of low prices and high quality are capturing the hearts and wallets of consumers all over the world. In the United States, more than half the population now shops weekly at mass merchants such as Wal-Mart and Target, up from 25 per cent in 1996. In the United Kingdom, premium price retailers such as Boots and Sainsbury are scrambling to meet intensifying price and quality competition from value-based retailers such as Asda and Tesco. These and similar value players in other industries such as Dell, JetBlue Airways, Ryan air, Southwest Airlines and Kulula.Com, are transforming the way consumers of nearly every age and income purchase groceries, apparel, airline tickets, financial services, computers and various other products. As value-driven companies in a growing number of industries change the way they compete, traditional players are right to feel threatened. The formula these upstart firms often rely on includes focusing on one or a few consumer segments, providing better delivery of the basic product or one additional benefit, and matching low prices with highly efficient operations to keep costs down.

To compete with value based rivals, mainstream companies must reconsider the perennial routes to business success; keeping costs in line, finding sources of differentiation and managing prices effectively. To succeed in value based markets, companies need to infuse these timeless strategies with greater intensity and focus and then execute them flawlessly. Differentiation, for example, becomes less about the abstract goal of rising above competitive clutter and more about identifying opportunities left open by the value players’ business models. Effective pricing means waging a transaction by transaction perception better to win over those consumers who are predisposed to believe that value-oriented competitors are always cheaper. Competitive outcomes would be determined, as always, on the ground; in product aisles, merchandising displays, reconfigured processes and pricing stickers. When it comes to value-based competition, traditional players cannot afford to drop a stitch. Value-driven competitors have changed consumer expectations about the trade-off between quality and price. This shift is gathering momentum, placing a new premium on/and adding new twists to the old imperatives of differentiation and execution.

To counter value-based players, marketers will need to focus on areas where their business models give their companies room to maneuver. Value-based markets also place a premium on execution, particularly in prices and costs. Wal-Mart’s disastrous experience in trying to compete head-on with well established discounters such as Aldi in Germany, highlights the difficulty of challenging value leaders on their own turf. Matching or even beating a value player’s prices won’t necessarily WIN THE BATTLE of consumer perceptions against companies with already established reputations for the lowest prices. To effectively compete against value-based players, firms may need to downplay or even abandon some target market segments. For example, to compete with Ryan air and Easy jet, British Airways has focused on its long haul routes, where value-based players are not evident.

Source: Adapted from Kotler et al (2009), Marketing Management, 13th Ed. Pearson Education Ltd. Edinburgh.  

Required

a) Identify and explain Porter’s generic competitive strategies being used in this case.

b) Using Porter’s value chain model, discuss how the value driven companies have used this model and can use the model as a basis for lowering costs as well as providing high quality.                                                                         

c) Using defensive warfare strategies, discuss how traditional market leaders in the different industries can go about using these strategies to defend their market position.