5. Summary and conclusions
New low-cost innovators have succeeded using simplified business models based on low operating and capital costs, outsourcing, producing good enough products, and purchasing the rightto use technology rather than developing patents. In some cases, the price levels were so attractive that goods and services originally aimed at specialized markets became mass market-based, like Haier’s low-cost wine refrigerator. In other instances, the low-cost models resulted in consumers being willing to accept lower service levels as a trade-off for lower prices. Of the four competitive response strategies studied, wait and watch is the easiest to implement. While a long-term wait and watch time period enables existing firms to better understand a new competitor’s impact, it gives the new competitor ample opportunity to establish itself. The strategy of keeping a firm’s current price structure is most appropriate for markets characterized by strong brands in four situations: existing firms offer highly differentiated goods and services, products are complex, a large segment of consumers is not price conscious, and low price levels have little impact on expanding the overall market. Too many firms seek to match, as opposed to coming close to, low-cost competitors’ price levels. With a coming close strategy, an established firm should monitor low-cost competitors’ prices and determine an appropriate price premium based on its competitive advantages. Firms using the matching pricing strategy need to recognize the difficulties in matching the cost structure of their newer low-cost competitors. Unlike the new entrant, the traditional firm may have contractual relationships with vendors including unions, property owners, and suppliers; a corporate culture based on full service and very high levels of product quality; and complicated and costly business models. In addition, its assets may be tied to specific technologies, tasks, products, and locations.
