Flexible companies survive and thrive in disruptor environments

Companies always strive to be the biggest and the best. The danger of being a big market leader however is that you are less flexible to change. Free mobile realized this when it entered the market a couple years ago; it decided to target the budget-conscious consumer instead of facing the massive French telecommunication companies, like Orange and SFR, on the same consumer segments.

Orange and SFR are well-established companies that offer very good service all throughout France. Free mobile knew that if it were to compete, it would compete on price. The disruptor company was aware that to maintain such a large infrastructure, the large telecommunication leaders had a lot of expenses as well. Thus, while they have significantly better quality, they would never beat Free mobile on price.

The large telecommunication companies worked smarter though. Instead of starting a price war, those companies created spin-off brands to compete directly with Free mobile while avoiding cannibalizing their sales of the more higher end services. This is very clever because it likely attracted current customers who would have switched to Free mobile while continuing to offer the same high quality products to the people who are willing to pay the high quality price. The companies were also smart to keep the spin off brand separate from the original brand so as to not hurt the original brand image with the new budget friendly products. To ensure that the new products are profitable, some of the expenses had to be reduced; they made these products only available online and they offered slightly less gigabytes of internet than Free.

Because the new budget brands are competing on price though, customer retention is likely very low. Customers subscribe to a promotional plan for one year. Once the promotion ends, they switch carriers to benefit from their promotional rate. Red by SFR likely decided that it costs more to acquire new customers than it does to simply offer the promotional offer without an expiration date. As a result, the company recently became the new disruptor by launching a telephone plan at the promotional rate of 10 euros with no expiration date. I expect that the rest of the budget plans will follow suit in the next couple of years as well.

Can you think of another company that started a spin-off brand as means for competing with a new, innovative entrant ?

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