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Benefits of Intense Competition: Lower Prices and Better Products
Published on 2011-08-16 19:06:00
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.Over the years, we have done in depth studies of more than fifty industries who have faced intense competitive markets. We found both what you might expect and, also, what you wouldn’t expect. You woul [..] > read more
Does the Withdrawal of Capacity Help?
Published on 2011-07-22 20:04:00
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 [..] > read more
Failures in Reliability Lead to Share Loss
Published on 2011-07-06 18:04:00
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 companie [..] > read more
The Mobile Phone Industry and Customer Retention
Published on 2011-06-29 19:14:00
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 man [..] > read more
A Likely End Game to Hostility
Published on 2011-06-22 17:06:00
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 [..] > read more
Nestlé’s Cost Reduction in the Coffee Business
Published on 2011-06-01 21:47:00
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 produ [..] > read more
Cable T.V. and Customer Retention
Published on 2011-05-25 18:02:00
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 [..] > read more
The Kindle with Special Offers…not your typical low-end product
Published on 2011-05-16 17:26:00
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 [..] > read more
Cable T.V. and Customer Retention
Published on 2011-05-04 13:46:00
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 [..] > read more
A Squeeze at the Top
Published on 2011-04-26 18:12:00
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 s [..] > read more
The Long and Arduous Journey of the Airline Industry May be Reaching an End
Published on 2011-03-10 16:50:00
The government deregulated the airline industry in 1978. Since that time, the basic pricing in the industry, as well as airline fortunes, have been more or less continuously on the downward slope. It has been a very long trip down. The industry may > read more
Apple Gets Crossways with App Developers
Published on 2011-02-17 16:52:00
Recently, Apple rejected a digital book application from Sony. The disagreement here is over how and when Apple collects for its services. Apple is playing a dangerous game.In theory, Apple has the right to insist, under its terms for developers, tha > read more
Constrictions in Components Supply Support Higher Prices
Published on 2011-02-14 15:54:00
Years ago we were doing some work in the roofing business. In one study, we were working on the asphalt shingle roofing manufacturing business. At the time, this was a terrible business. Returns were low, growth rates were modest, at best, and the > read more
Direct Edge: A Transformer Next Leader Product
Published on 2011-02-10 16:29:00
A Next Leader competitor is in an extremely fortunate position. A Next Leader is a competitor or product that offers much better than industry standard performance for a low price to a specific subset of industry customers. While offering better be > read more
The iPhone Versus the iPhone
Published on 2011-02-07 16:31:00
After nearly four years, AT&T has lost its exclusivity on Apple’s iPhone. It has been a great run. Now AT&T faces the formidable competition of Verizon, who started offering the iPhone in February of 2011. Market shares are about to shif > read more
The Price Can Go to Zero
Published on 2011-02-03 12:09:00
For many years, the fees charged by investment managers of mutual funds grew ever so slightly, gradually approaching 1.5%. Over the last few years, though, the growth in these management fees has stopped. In fact, it reversed. Last year the averag > read more
Evolution of the Smart Phone Market
Published on 2011-01-27 16:08:00
The smart phone market is growing at a very fast pace. The number of smart phones sold world-wide is expected to grow at a pace of more than 15% a year. This is what we call a Developing market. The smart phone market portrays some interesting dev > read more
Best Buy in a Leader's Trap
Published on 2011-01-24 16:32:00
Few industry leaders believe their prices are too high. Often, they are right. They are usually less right in a market where prices fall. Consider GM in automobiles and IBM in personal computers in the past. At one time or another, most industry > read more
A Very Rare Form of Pricing
Published on 2011-01-20 16:41:00
Recently, Continental Airlines introduced a new service called “FareLock.” This new service gives travelers three days, or a week, to decide whether to buy a ticket and avoid a fare increase or the risk that the passenger’s flight will sell out > read more
Google at Risk
Published on 2011-01-13 17:55:00
Google continues to dominate the search market. It commands about two-thirds of all the searches done on the internet. Its next closest rival is Microsoft’s Bing which, at 28% market share, includes its integration with Yahoo’s site. (See “Au > read more
Strangling the Goose
Published on 2011-01-10 19:04:00
Some time ago, we wrote a blog (see HERE) on the declining value of airline miles programs. At the time, we noted that most of those miles awarded were worth less than a cent. In fact, the airlines themselves believe that these miles are worth far > read more