PRICING ADVISOR
1. Be careful about misreading your competitors’ actions Often price wars are started due to misreading competitors’ actions or intentions. The results can be a downward spiral in prices that ruins profitability. In the packaged goods industry, a company recently discovered the cost of not having accurate information. It misread a 10% price cut by a competitor by assuming that it was a long-term strategic repositioning of its product, but that was not the case. In fact, the competitor was responding to an FDA requirement that all nutritional information about packaged foods be reset to 6 oz. Hence, the competitor was only trying to get rid of its obsolete 6 ½ oz package before launching the 6 oz product. By misreading the intent of the price cut, the company responded with its own deep price cut. If it had not done so, prices would have returned to normal in a month or so; instead, the result was a price war that destroyed industry profits for the year. 2. Selectively communicate your strategy By no means should an organization participate in collusive or predatory pricing. But there are situations where companies should selectively communicate their strategies to minimize the chances of a price war. When Chrysler, for instance, was under the threat of a deluge of new minivan competitors entering the market, the president made a speech to its deal-
How to Avoid a Price War
Price wars are detrimental to all involved. They destroy industry profits and rarely lead to long-term advantage for anyone. In this article, the author explains common causes of pricing wars and gives guidelines that will help your company successfully avoid price wars and maintain profitability. Paul Hunt is the president of Pricing Solutions, a global pricing consultancy, and a regular presenter at PPS events and workshops. He can be reached at phunt@pricingsolutions.com. ers covered by the business press. In the speech he indicated that Chrysler would be building a new...