When A Price War Is An Effective Pricing Strategy

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When A Price War Is An Effective Pricing Strategy
The words price war are enough to strike fear
and dread into business people. It doesnt 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. Its
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
companys 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 opponents break-even
point, which was still above its breakeven point.
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