When consumers are under financial strain in a downturn, low cost rivals can quickly attract customers away from traditional retailers, Nirmalya Kumar, Professor of Marketing at London Business School explains why market leaders should take notice of their low cost rivals and develop strategies to compete with them.
Nirmalya explains that traditional incumbents are often surprised by the success of low cost rivals, convinced that customers will pay for additional benefits and features. When confronted with the success of these rivals they may try to lower prices to compete, but a low cost business structure is difficult to replicate with existing cost structures.
Instead, Nirmalya suggests that brands need to differentiate their offering to justify a higher price, or sometimes just wait and see if the new rival actually expands the market for their product.
As for the current boom for discount supermarkets, Nirmalya cautions the traditional leading stores that not all customers will return when the good times do, and developing a strategy to compete with low cost retailers is essential.
Listen to the podcast to hear more of Nirmalya Kumar's thoughts about competing with low cost rivals.