when a price war is an effective pricing strategy
TRANSCRIPT
The words – price war – are enough to strike fear and dread into business people. It doesn’t matter if you are a big company or a small one. So why do companies start them, how should you respond, and how do they expect to win? If implemented correctly, a price war can be an effective pricing strategy.
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When A Price War Is An Effective Pricing Strategy
American textbooks believe a price war is a self-destructive, lose-lose scenario. It’s devastating for the company, its competitors, and bad for the customers as well. However, the Chinese do not think the same way. The Chinese tend to think in terms of business competition in military terms.
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When A Price War Is An Effective Pricing Strategy
Why Start a Price War At All
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When A Price War Is An Effective Pricing Strategy
The goal of any price war is to increase a company’s market share quickly by removing some of the competition from the marketplace. Price wars get started for one of two reasons.
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When A Price War Is An Effective Pricing Strategy
How to Implement an Effective Price War
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When A Price War Is An Effective Pricing Strategy
Such a strategy is usually based on incremental breakeven analysis or cost profit analysis. The strategy is to take a lower, but still positive margin on products. They anticipate market share growth and hence use the lower variable cost per unit per bolster their gross margin.
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When A Price War Is An Effective Pricing Strategy
How Do Respond to a Price War
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When A Price War Is An Effective Pricing Strategy
Recognize quickly that a price war is starting. This is important because many assume that something else is going on with the company. Some companies will start a price war during their low season. Their competitors incorrectly assume that the company is dumping excess inventory.
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When A Price War Is An Effective Pricing Strategy
An Effective Pricing Strategy Example
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When A Price War Is An Effective Pricing Strategy
Galanz is a home appliance maker. It launched its first price war during the off season, which caught most of the competitors off guard and as a result, many did not respond. Galanz prides itself on its streamlined processes and efficiency of operation. Since its first price war, Galanz has adopted a policy of setting its price at the break-even point of the nearest competitor. In subsequent price wars, it would lower its price below the opponent’s break-even point, which was still above its breakeven point.
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When A Price War Is An Effective Pricing Strategy
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