Foreign competitors are expanding with low prices

Symptom: Foreign competitors are offering 10-15% discounts.

Implications for the market:

  • These foreign competitors may not be successful in the long term.

    • The discounts that foreign competitors offer are usually large enough to move share in the early years.

    • Once an industry turns hostile, however, these discounters face poor prospects. Their share, as a group, rarely exceeds 20 percent and usually shrinks once traditional competitors begin matching their discounts.

    • These discounters may have a longer-term impact on the industry, however, if they are able to establish some advantage in addition to price.

    • Discounters with low cost structures may gradually reduce their reliance on price and shift instead to performance-based competition. They then become much tougher long-term competitors.

    • While winning share on price, discounters can often establish entirely new channels of distribution. These new channels increase the degree of competition in the industry and will usually migrate to performance-based competition as their formerly discounting suppliers shift strategies to emphasize performance. Back-channel distributors can become much stronger.

Recommended Reading
For a greater overall perspective on this subject, we recommend the following related items:


Perspectives: Conclusions we have reached as a result of our long-term study and observations.

  • "How Price Kills Profits"
    Many people use their costs to determine their prices. But customers don't care about a company's costs. By thinking more like customers when pricing products, a company might increase its profits.

  • "Is Your Industry Ripe for Hostility?"
    A company enjoying above average margins probably has a competitive advantage. But if margins are high for an entire industry, tough times may lie ahead.

  • "The Leader's Trap"
    Being the market share leader should be an advantage. But leadership also has its dangers. Many times, in a range of industries, leaders have allowed themselves to be trapped.

  • "The Price Segment"
    The price segment is not nearly as attractive as many assume.