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The Fate of Price Point Specialists in Hostility

As a market works its way through overcapacity and Hostility, the industry’s Price Point specialists come under extreme pressure.

Often, the low-end competitors, we call them Price Leaders, are squeezed out by the industry leaders, whom we call Standard Leaders, introducing low-end products to their product line. This pattern explains the demise of low-end automobile manufacturers, such as Yugo and American Motors. The high-end Price Point specialists, whom we call Performance Leaders, also tend to suffer. The industry Standard Leaders introduce more high-end products and pull enough volume from the Performance Leaders to cause them economic hardship.

Many of the Performance Leader companies are purchased by Standard Leaders over time. An example is Ford’s purchase of Volvo and Jaguar when Ford was still a strong Standard Leader. Today, the Japanese automobile manufacturers set the standards for the auto industry. They offer products at most price points, from Price Leader to Performance Leader, and present a strong challenge both to other Standard Leaders and to the remaining independent Performance Leaders in the automobile industry. (See the Perspective, “Why Do Leaders Lead?” in StrategyStreet.com/Tools/Perspectives.)

Even the airline industry is starting to see pressure on the Price Leaders caused by Standard Leader cost-cutting. Until recently, the Price Leaders in the industry, such as Jet Blue, Virgin America, Air Tran and even Southwest, had been protected by the onerous work rules that the unionized workforce imposed on the legacy carriers. But bankruptcy, or its threat, enabled the legacy carriers to reduce some of their cost disadvantages. Now even the best of the Price Leaders in the industry feel the sting of intense competition. At the other end of the price spectrum, no Performance Leader airline in the industry has survived more than a very few years during hostility. All are now gone.

Posted 7/28/08

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