Most managers will be involved in a price war at some point in their careers. Every price cut is potentially the first salvo, and some discounts routinely lead to retaliatory price cuts that then escalate into a full-blown price war. That’s why it’s a good idea to consider other options before starting a price war or responding to an aggressive price move with a retaliatory one. Often, companies can avoid a debilitating price war altogether by using a set of alternative tactics. Our goal is to describe an arsenal of weapons other than price cuts those managers who are engaged in or contemplating a price war may also want to consider. In fighting price wars, there are two tactics; first is by nonprice responses, and second is by using price responses.
Nonprice Responses
- Reveal your strategic intentions and capabilities
Example: offer to match competitors’ prices, offer everyday low pricing, or reveal your cost advantage.
- Compete on quality Increase product differentiation by adding features to a product, or build awareness of existing features and their benefits
Example: emphasize the performance risks in low-priced options.
- Co-opt contributors
Example: form strategic partnerships by offering cooperative or exclusive deals with suppliers, resellers, or providers of related services.
Price Responses
- Use complex price actions
Example: offer bundled prices, two-part pricing, quantity discounts, price promotions, or loyalty programs for products.
- Introduce new products
Example: introduce flanking brands that compete in customer segments that are being challenged by competitors.
- Deploy simple price actions
Example: adjust the product’s regular price in response to a competitor’s price change or another potential entry into the market.