Competing against

Group 6Anuja Rege (PGP 31069) | Ayush Trivedi (PGP 31017) | Harsh Chordia (PGP 31264)

Sanjay Gupta (PGP 31263) | Samrdhi Ramawat (PGP 31107)

A new competitor enters your market…..& offers a product similar to yours

Industry Rivalry increases, right ?

That’s strategy 101 for you

What if they offer the product for

FREE

What would you do ?

Introduce your own free product..?

Revenues & Profitability

Do nothing and allow the attacker to self destruct..?

Market share

Confused ?

…here’s what to do

Assess the threatSeriousness of threat depends on 3 factors

Ability to cover costs

Growth in the number of users

Speed with which customers are defecting

Choose whether and when to respond

Once you establish whether and when to respond => next step is to figure out How to Respond?

Incumbent’s arsenal of weapons to introduce better free product

Large user base who’ve invested in how to use the product

Advanced technical know-how

Substantial brand equity

Significant financial resources

Market knowledge

Access to important channels – distribution & marketing

Four

Strategies

UPSELL

CROSS-SELL

CHARGE THIRD PARTY

BUNDLE

• Free basic offering + Premium Version

• Requirements:• Very large user base of free product => even

low conversion rate will help generate significant revenues

• High conversion rate in case user base is small

• Free product + Sell other products

• Requirements:• Broad product line,

preferably complements of free product

• Partnerships to sell a broad product line to users of free products

CHARGE• Free product + Access fee for

third party

• Requirements:• Third parties willing to pay access

fee +

• A free offering with wide user-base that can be segmented

• A focussed TG that makes up a segment

BUNDLE• Free product + Paid offering

• Requirements:• Products/Services that can be bundled with free offering

• Free product needing regular maintenance or a complementary offering

Major problem why incumbents fail ??

They fail to counter-attack

• Example 1: Reluctance of newspapers in US to embrace free business model when attacked by Craigslist

• Result: According to authors’ research, Salt Lake City – only top 50 US metro market for classified ads not dominated by Craigslist

• Why couldn’t Craigslist dominate Salt Lake City??

• Incumbent Deseret Media responded quickly by changing their business model

• More buyers went to Deseret’s ksl.com than Craigslist

•Example 2: Incumbent Intuit vs Mint.com

• Intuit purchased Mint.com and kept its 2 offerings Quicken and Mint separate

• Example 3: Yahoomail vs Google’s Gmail

• When Gmail offered 10 times more storage than Yahoo in 2004, Yahoo responded by first matching, then exceeding Gmail’s free storage offer

• Example 4: Failure of incumbent airlines in Europe vs RyanAir, which offers free or heavy-discounted tickets and charges for other services

• Result: RyanAir gained impressively, market share exceeding that of Air FRance

•Example 5: Incumbent SiriusXM, which offers subscription packages of more than 180 channels vs Pandora, which provides free service over the internet and earns by selling ad-free version and selling access to its user base to third parties.

What prevents established companies from making the leap to free product strategies?

Belief that products must generate revenues and

profits on their own

Profit-center structure and the

accounting system

Profit centers

Advantages

Push P&L accountability

down

Disadvantages

Prevent from separating

product’s revenues and costs

Makes it tough to conceive and

implement a free-product strategy

How to prevent this problem??

• Profit responsibility must be pushed up to a management group

• Companies primarily relying on free product strategy place this responsibility much higher in the organization than the one that uses as free offering as a small part of a comprehensive strategy

• Another culprit stopping companies’ from pursuing free product strategy is

Cost accounting system• Stepping back from cost accounting

gives flexibility

Free product strategy

Entails-

Experimentation

Risk taking

Require cultural shift

Strong leadership will be needed for

Mounting a competitive

response

Revamping organizational

structures

Questioning cost accounting information

Indian Context

Lenskart is offering first frame free on signup

Charging users for only lenses

Strategy to quickly build consumer base

“Lenskart is growing at more than 40%. However, the growth rate is mainly attributable to small base. And the defection rate among the existing players is also not large. Hence, the threat posed by Lenskart is not

immediate and the services can co-exist”

• Domino’s buy 1 get 1 free on delivery offer has helped it to wean away consumers from Pizza Hut which focuses on fine dining experience

• Selective use of the offer has helped Domino’s to reduce its store size and focus more on delivery

• The offer has helped Domino’s to expand its customer base at a very fast pace

“The growth rate for Domino’s is less than 40% however the defection rate for its competitors is high. Hence, competitors need to take immediate action”

• To boost its sales, Myntra offers buy 1 get 1 – even buy 1 get 2 free at times.

• These offers are launched for a limited period as a part of a sale, or even during some days for a specific time to induce sales.

“For a well-established player like Jabong, the threat from Myntra was not perceived as serious. It was seldom that Jabong offered similar offers as that of Buy One Get One for their products.”

Source: https://yourstory.com/2016/07/jabong-myntra-flipkart/

• Netflix recently launched in India in Jan’16 offering 1 month of streaming free

However, pay per view companies such as BigFlix, Shemaroo, UTV or Cable TV service providers with pay per view movies such as Tata Sky Showcase are not affected at all!!!

“With an already well-established customer base, and lower tendency of Indian customer to enroll for monthly paid viewing subscriptions, Indian companies perceive very minor threat from Netflix. Strategy may not change till Netflix achieves significant growth rate or companies are affected by significant defection.”

These slides were prepared by Anuja Rege, Ayush Trivedi, Harsh Chordia, Sanjay Gupta and Samrdhi Ramawat as a part of the course “Brand Management” taught by Prof. Sameer Mathur

Marketing Professor 2009 – 2013

Ph.D. and M.S. (Marketing) 2003 – 2009

Marketing Professor 2013 – Present

Indian Institute of Management, Lucknow

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