#7 Key Question: How do premium brands defend their market position against price-aggressive low-cost competition?

Differentiated companies such as premium brands are generally vulnerable to the threat from low-cost competitors due to the high price gaps between their products and those of low price rivals. Low-cost competitors attacking brands utilize the high price level of differentiated premium companies and position themselves with aggressively priced advanced offerings compared to their core low price products to capture additional sales volumes from brands by doing so benefiting from experience curve driven cost / unit reductions. This kind of competitive behavior exerts significant volume and margin pressure on premium competitors while bolstering growth and value contribution of low price companies.

To protect their market position and maintain the credibility of their brand positioning, responsible for their core business’s high margin revenue stream premium brands avoid lowering the price level of their offerings. Instead they pursue two strategic options that initially require increased costs and investments, but safeguard their premium positioning and activate additional sources of revenue in the long run:

1.Defense of Premium Differentiation:

• Value chain driven optimization of offering strengths and customer value
• Maximization of cost efficiency without compromising differentiation-relevant performance factors
• Brand optimization: sharpening brand identity, increasing brand attractiveness, reinforcing price positioning
• Enhancing offering competence: expanding product range, increasing innovation cycles, offering limited editions, expanding services
• Leveraging distribution strength (offline, online)
• Strengthening customer focus: emotional connection, engagement, loyalty programs, targeted customer actions
• Harnessing digital levers: omni-channel campaigns, social media presence, influencer marketing, email marketing

2.Dual Positioning:

1. Establishing a competitive new business model in the low-cost segment in parallel to the premium core business
2. Autonomous, profit-maximizing business model
3. Independent leadership
4. Competitive low-cost structure
5. Price-aggressive competition displacement in the low-cost segment
6. Utilizing synergies with the parent company for cost structure optimization

Both strategies are capable to support a differentiated premium positioning in the market and defend it against low-cost competition without giving in on price.