Pricing strategy and market competition analysis for Larson batteries

Larson

Pricing Strategy Recommendations

Larson is engaged in monopolistic competition. The batter market is becoming commoditized and there are few barriers to entry at present, which has resulted in an increase in the number of competitors. Many of these competitors compete on the basis of price, a sound strategy in a market where products are undifferentiated and there are many different competitors (McCain, no date).

Larson's concern at present needs to be erecting barriers to entry, as it is the new competitors that are eroding its market share. Pricing policy can serve as a barrier to entry. Larson has some size, but it is not indicated if they are the largest firm in the industry. They have a 35% profit margin, so there is room for cost cutting to build market share. If Larson increases market share, it can use the resulting economies of scale in order to adopt a low-cost strategy, pricing out smaller competitors and thereby consolidating market share.

The other option for Larson is to adopt a differentiated strategy. This strategy is less viable for two reasons. One is that the company has to this point failed to develop any competency in branding. The product itself is not differentiated, so branding is critical to the differentiated strategy. As well, R&D is not an established competency for Larson either. Without these two core strengths, Larson will have a difficult time differentiating its product. There is no indication that the market will support a differentiated product. As an OEM, Larson is selling to corporations, typically mass market operators, and those companies are concerned with price, as the high degree of elasticity of demand indicates. If Larson adopts a differentiated strategy, it will need to not only become the best battery producer but it will also inherently limit its potential market. It is recommended, therefore, that Larson adopt a low cost strategy. The company should lower its price to squeeze out smaller competitors. As it gains market share through this tactic, it should add capacity and leverage economies of scale to further lower price, providing a strong price-related barrier to entry in economies of scale (QuickMBA, 2007).

Non-Price Barriers to Entry

In the OEM business, ongoing contracts are a strong driver of future sales. Once Larson becomes the battery supplier for a company, it can build a strong relationship with that company. The result will be a non-price barrier to entry as smaller firms find it difficult to break the relationships that Larson forms with its customers. Without those customers, there will be less room for growth and for market entry for smaller and newer competitors.

Product Differentiation Recommendations