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Many a times, especially in small businesses, it has been observed that a business, in order to win customers, lowers the prices of products and start selling them at low margins, or even at break even, without any profit. This technique is used to win customers and bring in loyalty. So, how to deal with those price wars ?
How about adopting a blue ocean strategy or turing your self to a brand and justifying price :P
I never entered into a price war and always won. I always sold products that are minimum20% above competition and up to50% more expensive.
Who ever starts a price war loses margins and profits to invest in the company development.
A company is in a long term commercial war while a price war is a short term tactic to win a battle.
To confront a price war the company needs to do "price micro surgery" and know which prices to lower and which to increase. This of course will depend on the products portfolio, range, type etc.
Most guys who do enter into a price war have not done their home work
stick in the fight with the hardest hit, to remain competitive know your enemies....study their tactics and marketing strategies. Price can be patronage even on the higher cost BUT A BETTER SERVICE THAT OFFERS WITH EFFECTIVE QUALITY REMAINS IN THE TOUGH MARKET.
Explore the possibility if it can be justified by highlighting added values such as post sales service infrastructure; availability of spares inventory; etc. which competitor may not offer. Customer may save little amount but will carry very high risk for post sales service activities.
Think on similar lines and you may get an appropriate answer; Good luck!
According to the game theory, when price wars start competitors can end up in two situations. First is both with zero profit, if we assume that the market consists of only two players, or both with positive profits if they can arrange. So, there are two equilibrium points. In case of small and numerous firms then this competition continues until all get zero profit. That is what game theory says. However, in real world it can be different and with the hope of good future firms can increase the range of products they sell to get some profit.
It is OK to some extent...to handle the price challenge. Price war is like 'patch work'.........therefore renew the PITCH of your Product or Service to the customer. Any "Transformation or Challenge" is well managed with the VALUE generation for the users. Big or Small / Old or Young........market is like boxing ring. (for example : "FLIPKart" fighting with "Amazon & eBAY" in India).....!!
in the context of small/ family owned business?
increase price and invest the difference in advertising. add post sales service and you have a winner.
