How To Fight A Price War

Price wars are a fact of life, whether we’re talking about the fast-paced world of knowledge products, the marketing of Internet appliances, or the staid, traditional sales of aluminum castings. If you’re a manager and you’re not in battle currently, you probably will be soon, so it’s never too early to prepare. The best defense in a pricing battle isn’t to simply match price cut for price cut; they emphasize other options for protecting market share. For instance, companies can compete on quality instead of price; they can alert customers to the risks and negative consequences of choosing a low-priced option.

Companies can reveal their strategic intentions and capabilities; just the threat of a major price action might hold rivals’ pricing moves in check. And, finally, companies can seek support from interested third parties—governments, customers, and vendors, for instance—to help avert a price war. If a company chooses to compete on price, then It is recommended to using complex pricing actions, cutting prices in certain channels, or introducing new products or flanking brands—each of which lets companies selectively target only those segments of the market that are under competitive threat. A simple tit-for-tat price move should be the last resort—and managers should act swiftly and decisively so competitors will know that any revenue gains will be short-lived.

In the battle to capture the customer, companies use a wide range of tactics to ward off competitors. Increasingly, price is the weapon of choice—and frequently the skirmishing degenerates into a price war. Creating low-price appeal is often the goal, but the result of one retaliatory price slashing after another is often a precipitous decline in industry profits. Price wars can create economically devastating and psychologically debilitating situations that take an extraordinary toll on an individual, a company, and industry profitability. No matter who wins, the combatants all seem to end up worse off than before they joined the battle. And yet, price wars are becoming increasingly common and uncommonly fierce.

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