Benefits of Intense Competition: Lower Prices and Better Products

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No segment of our economy has been under more intense pressure than the manufacturing sector. Lower labor costs in many parts of the international economy have forced manufactured product prices down and shifted manufacturing jobs out of the United States. Competition has indeed been intense.

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Does the Withdrawal of Capacity Help?

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As industry prices fall, and companies’ fortunes decline with the resultant squeeze on their margins, some companies, especially the leaders, seek to withdraw capacity from the market. The leading companies expect the capacity withdrawal to do two things: redress the imbalance between capacity and demand; and raise prices to more attractive levels because of this better balance. In practice, the withdrawal of capacity often fails to achieve either of these objectives. Whenever a leader in an industry reduces its capacity to force price increases, it must consider how competitors will respond. In many, if not…

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Failures in Reliability Lead to Share Loss

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We have written several times before about the Customer Buying Hierarchy (i.e. customers buy Function, Reliability, Convenience and Price, in that order). We have also written, on several occasions, about companies winning and failing customers in a marketplace. In a stable market, failure of a supplier causes more market share to move than does another competitor’s “win” of market share against its peers. Most failures occur in Reliability. Recently, two of America’s paragon companies have failed their customers on Reliability and are now struggling to catch up. Other leaders have had a similar problem and…

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The Mobile Phone Industry and Customer Retention

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The mobile phone industry’s growth has slowed. It is now operating more like a stable, moderate to slow growth market. This is particularly true in Europe. To face the challenge of slower growth in the industry, European mobile operators are turning to customer retention, but they are careful of the customers they seek to retain. The Europeans have observed that less than 20% of an operator’s customers generate to 80% of the operator’s total revenue. This pattern repeats itself in many industries. When we have seen these patterns in other industries, we have also noted…

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A Likely End Game to Hostility

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The hard disk drive business has been a lousy place to compete for nearly twenty-five years. It has been the graveyard of many competitors. Twenty years ago, there were eighty disk drive manufacturers. By the mid-90s, there were only fifteen. By 2001, there were eight, and today it appears there are only four. But the fact that we are at four competitors, especially the size of the leading competitors, means that the industry is likely to come out of its recurring bouts of overcapacity and hostility. As 2011 began, there were five hard disk drive…

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Nestlé’s Cost Reduction in the Coffee Business

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Nestle is the world-wide leader in the coffee business. They offer coffees at virtually all price points. They invented instant coffee in the 1930s. After the buffets of the commodity markets over the last few years, the company has created a global push to reduce its costs and to increase the quantity and quality of the coffee it buys. We have found four generic approaches to reducing costs. First, reduce the rate of cost of a cost input. Second, reduce the cost inputs that do not produce output. Third, reduce unique activities and components in…

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Cable T.V. and Customer Retention

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Recently, I decided to test the waters for a less expensive television experience. I have been a loyal cable subscriber for thirty-five years, but friends have told me that other systems, especially satellite, are cheaper. I went online to DirectTV.com to check their packages. We have been spending about $112 a month. The equivalent package from DirectTV appeared to be about $81 a month. I was shocked at the size of the price difference. DirectTV was more than 25% less expensive than Comcast, my cable supplier. Given the size of these price differences, I did…

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The Kindle with Special Offers…not your typical low-end product

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Amazon has introduced a low-end Kindle product, the Kindle with special offers. This Kindle sells for $114 compared to the standard $139 Kindle with Wi-Fi. This is not a typical low-end product. Low-end products offer fewer benefits than industry-leading products (we call these Standard Leader products) for either the buyer or the user of the product in return for a lower price. We call these low-end products Price Leaders. There are two kinds of Price Leaders. The first, called Strippers, strip out benefits for both the user and the buyer of the product in order…

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Cable T.V. and Customer Retention

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Recently, I decided to test the waters for a less expensive television experience. I have been a loyal cable subscriber for thirty-five years, but friends have told me that other systems, especially satellite, are cheaper. I went online to DirectTV.com to check their packages. We have been spending about $112 a month. The equivalent package from DirectTV appeared to be about $81 a month. I was shocked at the size of the price difference. DirectTV was more than 25% less expensive than Comcast, my cable supplier. Given the size of these price differences, I did…

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A Squeeze at the Top

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The very highest end of Parisian hotels includes such names as the Crillon, the Plaza Athenee and Le Bristol. There are four of these highest prestige hotels in Paris. Their prices start at Euro 750 a night. Average room prices run around Euro 1000 a night. These are among the highest prices for hotel rooms in the world. Still, occupancy rates run around 80%. Even in the doldrums of 2008 and 2009, they fell only to 70%. Something new is happening, though. The high end of the market is about to see a doubling in…

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