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Companies have only three options: attack, coexist uneasily, or become low-cost players themselves. None of them is easy, but the right framework can help you learn which strategy is most likely to work.

Strategies to Fight LowCost Rivals

by Nirmalya Kumar

Included with this full-text Harvard Business Review article: 1 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work 2 Strategies to Fight Low-Cost Rivals 11 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications

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Strategies to Fight Low-Cost Rivals

The Idea in Brief

Formidable price warriors—such as Germany’s Aldi supermarkets, India’s Aravind Eye Hospital, China’s Huawei telecommunications— have gobbled up established players’ lunches. Yet many incumbents ignore these rivals, assuming—mistakenly—that extreme discounting will drive them out of business. Other established players mount price wars, which only slashes their profits without disrupting low-cost contenders’ lean business models. How to fight low-cost rivals? Kumar describes four alternative strategies: 1) Differentiate your offerings, 2) augment your traditional operations with low-cost ventures, 3) switch to cross-selling products and services as integrated packages, and 4) become a low-cost provider yourself. Choose the strategy that best fits your company’s situation. For example, when Irish airline Ryanair realized it couldn’t compete with Aer Lingus using modest price discounts, it transformed itself from a high cost, traditional carrier into a low-cost provider. Its revenues jumped 28% in just one year, and it boasted the highest punctuality rate of all the European airlines.

The Idea in Practice

Kumar offers four strategies for battling low-cost rivals: STRATEGY Differentiate your offerings USE WHEN… • You can combine numerous differentiating factors (e.g., cool products...