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How to compete effectively against low-cost competitors

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  • Berman, Barry

Abstract

Unlike older models of low-cost competition that were based on economies of scale, many new low-cost competitors have been able to be efficient at smaller sales levels due to a combination of the following strategies: producing ‘good enough’ products that provide extreme value by eliminating services that cost more than they are worth to consumers, utilizing simple business models, reducing research and development expenditures via joint ventures or through purchasing technology from bankrupt firms, using price cutting to drastically expand the market for a company's goods and services, and having an organizational culture that stresses frugality and efficiency. This article explores the low-cost strategies of Aldi, Vizio, and Southwest Airlines to identify common elements. Four strategies that established competitors can use to respond to low-cost competition are presented: (1) waiting and watching, (2) deciding not to match new competitors’ price levels, (3) matching or coming close to low-cost competitors’ price levels, and (4) developing a new fighter brand or private label brand to be sold along with a company's traditional brands.

Suggested Citation

  • Berman, Barry, 2015. "How to compete effectively against low-cost competitors," Business Horizons, Elsevier, vol. 58(1), pages 87-97.
    • Handle: RePEc:eee:bushor:v:58:y:2015:i:1:p:87-97
    DOI: 10.1016/j.bushor.2014.09.002
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    References listed on IDEAS

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    1. Berman, Barry, 2005. "Applying yield management pricing to your service business," Business Horizons, Elsevier, vol. 48(2), pages 169-179.
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    Cited by:

    1. Subramaniam Ananthram & Christopher Chan, 2021. "Institutions and frugal innovation: The case of Jugaad," Asia Pacific Journal of Management, Springer, vol. 38(3), pages 1031-1060, September.
    2. Dobruszkes, Frédéric & Givoni, Moshe & Vowles, Timothy, 2017. "Hello major airports, goodbye regional airports? Recent changes in European and US low-cost airline airport choice," Journal of Air Transport Management, Elsevier, vol. 59(C), pages 50-62.
    3. Gieri Hinnen & Stefanie Lena Hille & Andreas Wittmer, 2017. "Willingness to Pay for Green Products in Air Travel: Ready for Take‐Off?," Business Strategy and the Environment, Wiley Blackwell, vol. 26(2), pages 197-208, February.

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