Questions

Is creating a similar product in a competitive market thats only major point of distinction is a much lower cost to customers a good idea?

For example, apps like uber or ordering apps, saturated market, but what if you could deliver the service at a 30-40% lower cost (all other things being equal). Is this model a good idea or is it a race to the bottom?

4answers

It is always a good idea, but what you have to verify is that a product with a lower price will give the perception that it has a lower quality. If you want more advice, I am at your service.


Answered 3 months ago

Often in a growing market it is possible to go with a lower cost strategy for some time and piggy back on a leader.

Mostly, one has to differentiate as markets mature.

If one can offer lower cost than competitors sustainably, grow the business faster than market - execute very fast, then that itself is a differentiation. Else there may be a tradeoff between growth, market share, profitability, and cost, or even between staying or exiting - even at loss.

It also depends upon what you are looking for as a mission and that may determine your sweet spot. For example there are businesses that offer cheaper options, but cater to limited geographical market, and are happy to operate on a thinner margin and moderate volume. Or some offer more expensive options but offer better product or service, and are more profitable but lower on volume.

Normally lower cost as a strategy is very tough to sustain as a going concern. Many times others will catch up and offer cheaper. Some incumbents may decide to exit the market at this time.

In a mature markets, normally a key differentiator or unique positioning will be helpful. It can help sustainability of business and make it more profitable. If one aims big and for dominance of market, say like Uber, then this strategy is necessary.

Eventually the strategy will also depend upon your own capabilities, challenges, and the size of market you want to address. They can determine what path you may take, and it may be different for someone else.

Uber is not the only hailing app. There are many others that catered to different geographies that Uber had not reached yet. They may have been cheaper than Uber. Uber's competitive edge is scale and network today. Their product or idea is copy-able by anyone, and has been copied many times across the world. But not their scale, size, market share, and progress. Yet these companies have good valuations as they were ahead of Uber in a geography it had not reached yet. In fact in some geographies Uber exited at loss as it could not compete on local incumbent scale.

And then they have Lyft too to contend with in their market as well. Lyft has been known to be faster to get and cheaper at times. Yet both companies have good valuations, too.

Hope this helps. As you see this is a nuanced point if one thinks deeper. Ping me to sent up a call to discuss further to evolve an answer specific to your needs. Bye and all the best.


Answered 3 months ago

It is definitely a race to the bottom, you could look up a case study on a company called tiny owl in India, they raised millions of dollars to compete in this space and their lesser funded competitor at the time, Swiggy.

Now Indias 2nd largest food delivery platform, this case study provides multiple insights,

1. Cheaper doesn't mean better even though it's an identical service

2. Even within zomato and swiggy there are extremely loyal users to each app not because of price but because of their ease of ordering, to each their own

3. There is no way you can compete with them on price, even after being funded and having scale on their side they still aren't profitable, zomato is valued at $5.4 billion

If you do have any ideas for a business, happy to discuss


Answered 3 months ago

If your cost is very low, it can be a great idea. Look at Kogan.com that built a successful electronics retail company online, a highly competitive market, but the idea became extremely successful based on his core competitive advantage, i.e. low cost. Just depends on what sort of cost advantage you can provide!


Answered 2 months ago

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