In an article entitled "Wal-Mart puts heat on rivals by slashing prices", Marina Strauss of Toronto's Globe and Mail links steep and unexpected price cuts by Wal-Mart Canada to the broader battle for supremacy among North of the Border mass merchandisers:

Wal-Mart Canada Corp. has fired an unexpected early salvo in the holiday retail wars by slashing prices -- and inevitably hurting rivals -- while sending a signal that retail sales may be slower than expected in this crucial shopping season. Yesterday it cut prices on a wide range of popular gift items by as much as 50 per cent -- and in a few cases even more. The retailer said Canadians are delaying their holiday shopping, prompting it to act swiftly to stimulate business. ... Competition in the domestic sector has heated up with Wal-Mart aggressively expanding its store base. This fall it opened its first three Supercentres with a full range of products, including fresh foods. "They're going to keep playing hard ball," said one source familiar with Wal-Mart. "We've got into a battle of the superbrands and only the mighty will survive. I think you're just going to see a heightened competitive battlefield. It's not for the squeamish."

Interestingly, rivals are responding in kind rather than attempting to differentiate their way around each other:

Some competing retailers vowed to fight back. Grocer Loblaw Cos. Ltd., which has been quickly expanding into non-foods, was already planning to cut the price of toys by 30 to 50 per cent at its superstores, starting tomorrow, spokesman Geoffrey Wilson said. He said pricing of its Joe Fresh Style apparel line "is extremely well positioned in the marketplace and doing very well. Above all, no matter which of our formats, we are committed to be competitive in the markets in which we compete." Vincent Power, spokesman for Sears Canada Inc., said it regularly looks at what Wal-Mart and other competitors are doing "and we make any adjustments we have to." Best Buy Canada Ltd. has lowered its prices two or three times already on popular items -- particularly flat-screen televisions -- since the summer, said Charles Tobin, vice-president of merchandising. "In consumer electronics retailing, it's always important to make sure we're competitive."

And who is the likely beneficiary of all of the corporate bloodshed? Why the consumer, of course:

Continue reading "North of the Border Price War" »

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David Greising of the Chicago Tribune has an excellent article on the sometimes bitter battle for supremacy between Google and local favorite Baidu in the Chinese internet market. With a reported 62% of market share, Baidu is currently beating the pants off of the men from Mountain View. And though Baidu's better performance can be attributed to many factors, two which are mentioned in the article are especially noteworthy primarily because Google seems unable or unwilling to imitate them. The first, the one Google can not imitate, is Baidu's strategy of using nationalism as a basis of differentiation:

Baidu has built a dominant position. It has astutely designed features that appeal to Chinese users, beat its competitors to market and cast its most lethal opponent, Google, as a foreigner with suspicious ambitions. Baidu's none-too-subtle use of nationalism was on display in a recent online advertising campaign. It didn't slam Google by name, but it featured a group of villagers accosting a foreign couple. "You don't understand us, you don't understand us," one village elder scolded the outsiders. In a country with an ingrained distrust of outsiders, the message resonated. Li, who was educated in the U.S. and helped design the pioneering search engine InfoSeek, has no qualms about playing the nationalism card. "We think search is not just about technology," Li said. "It's also about language. It's also about culture."

The second pertains to another element of Baidu's business model- its pricing structure, particularly its practice of allowing advertisers to buy their way to the top of search engine rankings:

Continue reading "For Us, Buy Us" »

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The opening sentence of Bloomberg's account (via the Baltimore Sun) of Google's recent settlement with Belgian photographers and journalists is rather unremarkable:

Google Inc., the world's most-used Internet search engine, reached a settlement with Belgian photographers and journalists yesterday in a copyright dispute over how the company's news service links to newspaper content.

The next sentence, however, grabbed me by the seat of my pants:

The agreement removes two of five groups from a Brussels lawsuit that seeks to prevent Google from linking to Belgian newspaper articles for free. ... The settlements may show that Google is willing to resolve disputes with content providers trying to prevent the company from linking to Web sites without compensation.

That's not a misprint or a misquote. Belgian media firms are suing Google for doing what search engines are supposed to do, directing the users of search engines to information for which they are searching. Essentially Belgian content providers want compensation from Google for the right to linking to their content. This is a rather amazing demand. Given how hard it is to get found on the internet without a search engine, you'd think that they'd be paying Google for the links rather than the other way around.

Commentary

The fact that the Belgian are demanding payment says a lot about a lot, in particular the sorry state of mainstream media, both here and abroad; and perhaps the low quality of their content, the apparent collapse of their business and revenue models; a failure to comprehend the rudiments of information economics, network externalities, and internet-enabled social-networking.

Continue reading "Strip Searched" »

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In one of my recent pay-to-read Five Forces analyses I wrote whether Wal-Mart's generics-for-$4 program will lead to increased rivalry in the retail pharmacy sector. In Note on the Structural Analysis of Industries Porter hypothesized that:

"In most industries competitive moves by one firm have noticeable effects on its competitors and thus may incite retaliation or efforts to counter the move…This pattern of action and reaction may or may not leave the initiating firm and the industry as a whole better off. If moves and countermoves escalate, then all the firms in the industry may suffer and be worse off than before." .

Two factors that influence the degree of rivalry experienced are the degree of product differentiation and switching costs. Concerning the first Porter said that “when a product or service is perceived as a commodity or a near-commodity”, then consumer choice is largely determined by two things- “price and service.” Product differentiation is, then, a way to “create layers of insulation against competitive warfare” because buyers are presented with clear choices and thus afforded the opportunity to develop preferences for and loyalties to particular producers.

Switching costs are the “one-time costs of switching brands, or switching from one competitors’ product to another.” When switching costs are low or non-existent we should expect that consumers can and will have little resistance to changing products and producers. It would seem almost axiomatic that switching costs for generic drugs are little or non-existent.

How it is that low product differentiation and low switching costs increase rivalry is made very clear in recent news reports about Wal-Mart’s generic drug program. In article entitled “Wal-Mart hurries $4 prescriptions into Michigan”, Mary Radigan of The Grand Rapids Press describes how Wal-Mart’s low-cost generic drug program was rapidly countered by Meijer with a free program and then how quickly Wal-Mart responded again.

Three days after Meijer stores announced free generic drugs to customers, Wal-Mart today launched its $4 prescription program in Michigan months earlier than expected. Company leaders said public demand, not Meijer, prompted them to roll out the program here and in 11 more states today instead of sometime after January, as first promised. "We were planning on rolling this out, and this is just our next step to add additional states," Wal-Mart spokesman David Tovar said. "This has nothing to do with Meijer."

Interstingly. Meijer officials have no problem stating that their moves were in response to Wal-Mart:

Meijer President Mark Murray said today that he "fully expected" Wal-Mart to move the drug program into Michigan. "They clearly have accelerated their rollout nationwide," Murray said. "This is a competitive business."

Here are some recent examples of countermoves by other national, regional, and local competitors. According to the Washington Business Journal:

Wegmans Food Markets of Rochester, N.Y., unveiled a cost-cutting plan for nearly 200 generic drugs and will make them available in a three-month supply. The supermarket chain says customers will be able to purchase the medicine in a 90-day supply for $11.99. The program will be implemented Oct. 26 in all of the company's stores in Maryland, Virginia, New York, Pennsylvania and New Jersey. Kmart has also announced plans to reduce the cost of some generic drug prescriptions.

Perceptions of an responses to Wal-Mart's moves seem to vary across by region and industry. For example, while pharmacies in Alabama remain unphased...

Continue reading "Parry and Thrust" »

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