The moment a company spots a low-cost competitor, it would do well to ask itself this question: Is our new rival targeting a segment we don’t want to serve or will it eat into our sales? If the new entrant has set its sights on customers no other business serves, incumbents must wait-and watch and this often works for companies operating in super premium segments. Take the case of easy Cruise, set up by the London-based serial entrepreneur Sir Stelios Haji-Ioannou. Since easy Cruise doesn’t offer lavish meals and expensive shows, it is able to charge low prices. But incumbents like Royal Caribbean & Cunard have left easy Cruise alone. Available evidence shows that price wars don’t work in incumbents’ favor. In the late 1980s, Aldi, Dell, E*Trade & Southwest Airlines more than held their own when Carrefour, Compaq, Fidelity, and United, respectively, triggered price wars.
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Source : IIPM Editorial, 2006
An IIPM and Malaya Chaudhuri – Arindam Chaudhuri Initiative
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