Harvard Business Review’s December 2006 publication has an interesting article “Strategies to Fight Low Cost Rivals”. Unfortunately, the article was a bit of a downer. Don’t read it looking for the magic bullet. There is some clear analysis, interesting strategies and relevant case studies, but overall the message is – low cost providers are here to stay. You MUST transform your business or see your business eroded by the low cost providers. Many would like to believe that low cost providers will go out of business because they can’t sustain this model. I have made some references to this myself in this blog, but it is a complex issue. No business can sustain itself if it is selling below its cost, but a business that can operate a different model with a lower cost structure can be hugely disruptive to a mature market operating with a much higher cost structure.
This article shows excellent examples of how these low cost providers do not go away. If an incumbent company is successful at squeezing the low cost provider, there are others low cost providers right behind them. It is a long term trend.
The article does give practical strategies to compete, but they all require a fundamental transformation of your business.