Reactions To Price Challenges
The first reaction to a price reduction should always be to consider carefully. Has the competitor decided upon a long-term price reduction? Is this just a short-term promotion? If it is the latter, then the reaction should be that relating to short-term promotional activity, and the optimum response is often simply to ignore the challenge. Too often, price wars have been started because simple promotional activities have been misunderstood as major strategic changes.
But if it seems that it is a long-term move then there are many possible reactions:
- Reduce price: The most obvious, and most popular, reaction is to match the competitor's move. This maintains the status quo (but reduces profits pro rata). If this route is to be chosen it is as well to make the move rapidly and obviously - not least to send signals to the competitor of your intention to fight.
- Maintain price: Another reaction is to hope that the competitor has made a mistake, but if the competitor's action does make inroads into a merchant's share, this can soon mean customers lose confidence and a subsequent a loss of sales.
- Split the market: Branch one product into two, selling one as a premium and another as a basic. This effective tactic was notably used by Heublein, the owner of the Smirnoff brand of vodka).
- React with other measures - Reducing price is not the only weapon. Other tactics can be used to great effect: improved quality, increased promotion (perhaps to improve the idea of quality).
Read more about this topic: Price War
Famous quotes containing the words reactions to, reactions, price and/or challenges:
“In this Journal, my pen is a delicate needle point, tracing out a graph of temperament so as to show its daily fluctuations: grave and gay, up and down, lamentation and revelry, self-love and self-disgust. You get here all my thoughts and opinions, always irresponsible and often contradictory or mutually exclusive, all my moods and vapours, all the varying reactions to environment of this jelly which is I.”
—W.N.P. Barbellion (1889–1919)
“Cuteness in children is totally an adult perspective. The children themselves are unaware that the quality exists, let alone its desirability, until the reactions of grownups inform them.”
—Leontine Young (20th century)
“I have asked a lot of my emotions—one hundred and twenty stories. The price was high, right up with Kipling, because there was one little drop of something, not blood, not a tear, not my seed, but me more intimately than these, in every story, it was the extra I had. Now it has gone and I am just like you now.”
—F. Scott Fitzgerald (1896–1940)
“The approval of the public is to be avoided like the plague. It is absolutely essential to keep the public from entering if one wishes to avoid confusion. I must add that the public must be kept panting in expectation at the gate by a system of challenges and provocations.”
—André Breton (1896–1966)