A Low-End Competitor May Not Stay at the Low End

One of your competitors may be a low-end player today. If that competitor stays at the low end, the likelihood is that its share of the market will not exceed 15%, even if it is quite successful. However, the very success may breed a significant challenge to industry leaders in the future. If the low-end competitor is earning a good return on investment, it may enter the market for the industry’s higher-end products in order to enhance its own profits and future.

The pharmaceutical industry offers a current example of the phenomenon of a low-end competitor attempting to migrate into the Standard Leader products. Indian generic drug manufacturers, including Dr. Reddy’s Laboratories Ltd., Ranbaxy Laboratories and Glenmark Pharmaceuticals have realized great success and profits in the generic drug business. These are low-end Price Leader companies. Each is a type we call a Predator competitor. Each of these companies is reinvesting some of those profits from its low-end sales into research and development on proprietary drugs. If these early stage investments into the proprietary end of the pharmaceutical business succeed, these formerly low-end companies may well challenge the Mercks and Pfizers of the world.

If this trend seems unlikely, consider that Charles Schwab, Dell, Nucor Steel and Wal-Mart all got their starts at the low end of the market. For more on low-end competitors, see “Turmoil Below: Confronting Low-End Competition” in the Tools/Perspectives section of StrategyStreet.com.