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
Pursuing a differentiated strategy for Larson would require that the company actually be able to make the best batteries, which would require significant R&D investment. The company can certainly take steps to improve its branding, as that will not cost much compared with their total product expenditures. However, the best way for Larson to differentiate its batteries is through a cost leadership strategy. Larson's customers are price sensitive -- not something Larson has much power to change as the supplier to firms that have...
For Larson to try to flatten the price elasticity curve of its products would be akin to the tail wagging the dog. Larson is not large enough to succeed with such a tactic -- it does not have pricing power over its customers because most of them are going to be much larger firms that Larson and therefore have the majority of the bargaining power. Larson may be a price setter going downward, but not going upward given their customers' price elasticity of demand. Larson needs to adopt a low cost strategy as its point of differentiation while simultaneously working to improve its branding -- it does not need to be a branding superstar, but there is obviously room for improvement.
Works Cited:
McCain, R. (no date). Monopolistic competition. Drexel University. Retrieved May 10, 2010 from http://faculty.lebow.drexel.edu/McCainR//top/Prin/txt/Imch/MC1.html
QuickMBA, adapting Porter, M. (2007). Porter's five forces. QuickMBA.com. Retrieved May 10, 2010 from http://www.quickmba.com/strategy/porter.shtml
