Small discounting competitors have gained a market toehold

Symptom: Much smaller competitors have entered the market by offering price discounts. Over the last several years, these companies have garnered a small part of the market.

Implications for the market:

  • Few share points have shifted yet. In general, established companies do not respond to discounting new entrants until 10 – 15% market share has permanently shifted to discounters.

  • Nevertheless, these new entrants are potentially formidable competitors. They have had to overcome enormous difficulties to win share, among which are small size, lack of reputation in the marketplace, limited product lines, and newly established channels of distribution.

  • These companies will grow if they are not stopped soon while they are weak. New entrants remain vulnerable but are much stronger today than a few years ago because they have established track records and an in-place cost structure that will allow them to grow even in harsher economic times. Furthermore, their share gains, while not yet significant in size, will probably be secure for many years.

  • In some cases, established competitors can counter new entrants by using their own strengths. New entrants are attacking on price rather than on performance, which is the strength of established players. Superior product performance tends to move more share, and move it more permanently, than does price discounting.

  • But, if the smaller competitors continue gaining share with low prices, the larger competitors will eventually respond in kind.

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