Discount Business Strategy

Michael Moesgaard Andersen is CEO of Andersen Advisory Group A/S. He and his team have provided strategy advice to numerous companies and public organizations around the world, and he is also directly involved in business development through his own venture capital company. He has worked as a lecturer at Copenhagen University and as external examiner at Copenhagen Business School, and is a frequent speaker at conferences. He is the author of numerous articles and two books on technology and management issues. Flemming Poulfelt is Professor of Management and Strategy and Vice Dean at Copenhagen Business School, and Director of LOK Research Center. He is the author of many articles and books on the subjects of strategy, professional service firms, change management, knowledge management and management consulting. His books include The Contemporary Consultant (2004) and Managing Complexity and Change in SMEs (2006). He has served on numerous corporate boards, consults widely and is a frequent speaker at seminars and conferences.

"pleasant to read and informative" (Petroleum Review, December 2006)

• Foreword xi1 Why are some companies more successful than others? 1The real life laboratory 1Creating value and simultaneous destruction 3The volume game 6Simplicity – the word of the day 10Cut to the core 12Service? Something we’d rather do ourselves 15The black box of strategy turned upside down 172 The oxymoron of existing strategies: where do we go from here? 19Conventional strategic thinking 19The generic strategy framework 20Porter challenged 23Mixed strategies – the airline industry 263 When discount strategy becomes important 35Hyper competitive markets and traditional strategy 35The position of a discount strategy 38A single form – a simple form? 414 CBB 43Cultivating a hyper competitive market by way of a consistent approach to the notion of discount strategy 43A contradiction to the bursting of the IT-bubble 43The mobile sector – hyper-competition 44CBB as the enhanced service provider 46The original mission and strategy 47Crisis and the filing of a petition for bankruptcy 48The discount strategy – not a single quick fix 50New management 50Reinvention of the IT-systems 51A new customer care concept 52New brand and branding 53Reverse relationship marketing 54Political mass marketing 55Reorganization of the distribution 56Cost cutting programs 57Active price leadership 57CBB’s discount product – cheaper and better 58Product production characteristics 58Product marketing characteristics 62CBB’s use of price as a tactical weapon 64The importance of the price vis-a-vis the customers 64 `Active leadership in price wars 65Results – best in class 68A revolution in the mobile sector? 70Perspectives 725 Lidl 75Gaining ground in a hyper competitive market by a consistent discount strategy 75The German conquest 75The grocery retail sector – hyper-competition 76The original mission and strategy of Lidl 81The discount strategy – all encompassing 82Structured to control the impact of external factors 83Leadership through continuity 84The look and feel of Lidl 84High service level with a discount concept 87Squeezing the brands 89Aggressive go to market strategy 91Publicity through secrecy 94Active price leadership 95Lidl’s discount product – cheaper and better 96Product marketing characteristics 99The use of price as a tactical weapon 99Active leadership in price wars 100Results – top of the class 101Perspectives 1036 Ryanair 105Reshaping a competitive market through a consistent discount strategy 105Flying with the giants 105The airline industry – liberalized to full competition 106The early days of deregulation 108Towards the liberalized sky with a new strategy 109A transformed and polarized industry 111Ryanair as the alternative independent carrier 114Financial collapse evaded at the 11th hour 115The no frills, low fare strategy – not just one route 116New management 116Cost cutting programs 119Productivity-based compensation schemes 119Outsourcing to third parties 120Re-organizing sales and distribution 121Harmonizing and scrutinizing the fleet 123Customer care concept 125New brand and branding 128Political mass marketing 129Active price leadership 131Ryanair’s discount product – cheaper and better 132Product production characteristics 133Product marketing characteristics 135The use of price as a tactical weapon 136The customers’ perception of price 136Leading the price wars 138Results – Best in class 139Perspectives – a revolution in the airline industry? 1417 The building blocks of a discount business strategy 145Maturity and liberalization in different industries 145The building blocks of a ‘discount strategy’ 147The product 150The brand 152The customers 153Technology 155The four blocks as one discount strategy 1568 The attractiveness of the core product 159From peaceful coexistence to disruption 159Disruption and the corresponding value destruction 161Lean and unbundled nature of the discount product 165Self-service an important ingredient 172Aggressive pricing 177Demand-driven products 180Value creation 182Back to basics 1849 A good brand is much more than a good brand 185The growing importance of ‘brandr’ 185‘You need to invest money in the establishment of a good brand’ 187We cannot afford to spend 188David against Goliath 193The Gorilla image 199Branding as a tool-kit in the discount strategy 204Low prices as a new corporate social responsibility position 206Brand extension and discount 207The good brand 20910 The discount customer and social capital 211The pivotal role of the customer in a discount strategy 211Customers as social capital 214Social capital and the discount customers – the X factor 214The social factor in the discount strategy 215Social capital and egalitarianism 219The dismissal of relationship marketing 221Psychology, culture and the discount strategy 224The view on discount 224Exploitation of the cognitive dissonance 225Life-style and satisfaction 227The advent of the viral ambassador 228The patronizing of customers 230The rise and fall of patronizing 230Increasing brand promiscuity 231Simplicity prevails 233How to save costs and increase perceived quality? 234The main execution tactics 23411 Finding the suitable technology 237Finding technology 241The innovator’s dilemma and the innovator’s solution 244The choice of ‘discount’ technology 246Proven technology 248Scalability 248Technology supporting the simple 249Impact on back office system 249Technological exuberance avoided 25312 Value creation and value destruction 257Strategy and war 258Strategy revisited 264The building blocks of the discount strategy model 265The various execution processes 26913 Epilogue 273How to reflect thoroughly on the wider repercussions of successful discount business strategies? 273Notes 279Bibliography 287Index 291