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Price wars may be the immediate response in a competitive market. But they do more damage than good. An initial lowering of price is fine but the problem is when the tit for tat never stops, and that could hurt both you and your competitor.
Here’s why:
- When there is constant fluctuation of price the value of your good goes down. People will associate the price fall to dip in the quality and so demand too will decrease.
- Even if you attract customers you might not attract the right ones, but only the ones who just want to make immediate purchases based on price rather than the value of the purchase.
- Price wars also colour the buyers’ idea or perception of a reasonable price. They will not be able to judge what is the right price for the right value. These false expectations will not help anyone.
- If you think price cuts will increase market share you are wrong, in fact, it will hit your profits & revenue.
Senior managers must not yield quickly to price cuts and must dig out for more information and other ways to get back. If prices have been cut on account of special seasonal or festival discounts then an all round price retaliation isn’t needed.
Price cuts are advisable if you have a considerable cost advantage.
So what can you do if not for price cuts
Here are some other ways to respond to price wars
- incentives like free delivery, free gifts, gift wrapping will go a long way not just competitively but also in the aspect of creating of goodwill.
- Offer bundled prices, 2-part pricing, quantity discounts price promotions or loyalty programs for products.
- Introduce new products: brands that compete in customer segments that are being challenged by competitors.
- Adjust the product’s regular price in response to competitor’s price change or a potential new entry into the market.
