Competition is expanding with the appearance of discounters
Symptom: Industry margins are thinning as new competitors appear, offering discounts.
Implications for the market:
A price gap between established suppliers and their low-priced challengers disrupts customer relationships. Even though only a few customers shift their share to the new entrants, many more customers put price pressure on their established suppliers. Formerly stable customer relationships become unsettled.
The margins of established competitors decline because their costs are highly fixed and cannot easily be brought down as prices fall and volume is lost to new competitors.
These falling margins for the industry are likely to lead to further rounds of discounting.
The industry's weaker competitors will suffer most when new competitors arrive. They will lose share first and face the most painful financial setbacks.
Weaker competitors have few options, at least short term, except to counter their share loss by discounting.
By cutting their prices, the weaker competitors further intensify the margin pressure and customer instability across the industry. Soon other, stronger competitors will also be discounting.
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Perspectives: Conclusions we have reached as a result of our long-term study and observations.