how should a company respond to a competitor's price change
TRANSCRIPT
The only element of the marketing mix that produces revenue!
The other elements
produce costs. It is also the
easiest to adjust!
Internet especially
has had a profound
impact on buyers
and sellers!
Changing pricing environment:
Easy access to credit,
enticing market campaigns,
progressive technology
Buyers can
Get instant price comparisons from a slew of vendors
Name their price and have it met (Priceline.com)
Get free products (eg: free software products)
Monitor customer behaviour and tailor offers accordingly
Give certain customers access to special prices
Negotiate prices in online auctions and in person
Sellers can
Situation One: Homogenous markets
Price cut by competitor:
1) Enhance your
product 2) Lower your price if
feasible
Price increase by competitor:
Increase your price if
response of the buyers is positive
Non homogenous markets
Why did the competitor change the price?
Is the price change temporary or permanent?
What will happen to the firm’s market share and profits if it does not respond?
Are other firms responding?
What are the other competitors’ and other firms’
responses likely to be?
Price change by low cost competitors:
Further differentiate your product or service
Introduce a low cost venture
Re-invent as a low cost player
Recap:
Best response depends on situation
Possible situations:
Homogenous markets Non-homogenous markets
Low cost competitors