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Low end products are gaining share of the market

Symptom: Low-end products are growing faster than those at the heart of the market.

Implications for the market:

  • This is occurring because a group of customers does not need all the benefits offered by the standard product and are attracted to reduced-benefit products for a substantial price discount.

  • In many industries, large companies do not copy low-end products for a significant amount of time, because they believe that low-end products will not be profitable and that the weak competitors producing these products cannot survive.

  • These beliefs rarely hold. In fact, the apparently weak competitors often grow and gain a strong foothold in the market. Then they are positioned to disrupt existing customer relationships when the customer turns to them for products not offered by the incumbent suppliers.

  • Every competitor must examine its range of product price points offered to the market. The smaller low-end producers often can realize a profit at the low price point because of strong growth and relative lack of competition. But their growth and profitability last only as long as competition remains limited. Competitors who broaden their product price point offerings can often avert competitive threats.

Recommended Reading
For a greater overall perspective on this subject, we recommend the following related items:

Analyses:

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

  • "Attention K-Mart Copiers"
     To match experienced price competitors, management must be realistic about what a low cost and low price strategy really entails.

  • "Hostility in a Differentiated Market"
    A bottle of wine is surely a differentiated product. Nevertheless, the table wine industry underwent the same economic traumas faced by more traditional industries.

  • "When Product Mix Matters"
    There are several price point specialists. Some are better positioned than others for long term success in a hostile market place.

  • "The Choice of New Products"
    Companies add new products whether or not a market is hostile. But the choice of which products are most advantageous to add varies with the market situation.