Game Changer

CHAPTER 19Free: Competing with the Most Magical Price Point

With contributions from Joel Weitzman, John Pineda, and Matthew Kropp

Well‐established players in any pricing game tend to disregard the low end of their markets. When competitors enter the market with “good enough” offerings at low prices, those incumbents will usually concede those seemingly unattractive, low‐margin segments to them.

But these new entrants can become serious threats if they build strongholds in those segments and start to move upward in the market. In April 1990, Aldi, the German “hard discounter,” opened its first store in the United Kingdom. Hard discounters have a heavy focus on private‐label products and operate “minimally decorated outlets which sell a small assortment of foodstuffs and household goods – typically 1,000 to 1,500 SKUs.”¹ This simpler operating model allowed Aldi to offer significantly lower prices than the British supermarket giants, whose 7% profit margins at the time were the world's highest.²

By 2022, Aldi had become the UK's fourth‐largest supermarket chain, shaking up the “big four” lineup, which had remained roughly the same for nearly 20 years. That same year, Aldi and Lidl, another hard discounter based in Germany, combined to attract £1 of every £6 spent on groceries in UK.³

The difference between low price and no price

The American software company Intuit became ...