Competition is expanding with the appearance of discounters

Symptom: Industry margins are thinning as new competitors appear, offering discounts.

Implications for the market:

• A price gap between established suppliers and their low-priced challengers disrupts customer relationships. Even though only a few customers shift their share to the new entrants, many more customers put price pressure on their established suppliers. Formerly stable customer relationships become unsettled.

• The margins of established competitors decline because their costs are highly fixed and cannot easily be brought down as prices fall and volume is lost to new competitors.

• These falling margins for the industry are likely to lead to further rounds of discounting.

  • The industry's weaker competitors will suffer most when new competitors arrive. They will lose share first and face the most painful financial setbacks.

  • Weaker competitors have few options, at least short term, except to counter their share loss by discounting.

  • By cutting their prices, the weaker competitors further intensify the margin pressure and customer instability across the industry. Soon other, stronger competitors will also be discounting.