How to Fight
a Price War
HDCS 4393/4394
Internship
Dr. Shirley Ezell
Introduction
 Price wars are often described as the battle to
win the customer.
 Creating low prices can degenerate into the loss
of profit. Check out the airline story .
 Most managers will be in a price war during their
careers. However, one should consider other
options before starting a price war or responding.
Learn alternative tactics.
What are Alternative Tactics?
A. Take Inventory: Price wars start because
somebody thinks prices in a market are too high.
B. Managers may view a price change as an
easy,quick and reversible action.
C. By understanding price war causes and
characteristics, manager can make sensible
decisions about when & how to fight one.
First Step: Diagnosis
 Check out the case of the small commodities
supplier.
- What did he do?
- What is the diagnosis?
- What two things did the manager do?
First Step: Diagnosis
 Intelligent analysis leading to accurate
diagnosis emphasizes understanding the
opportunities for pricing actions based on
current market trends and responding to
competitors’ resources. One looks to see why
a prices war is occurring and where to look
for resources to do battle.
Stop the War
Before it Starts
There are several ways to stop
a price war before it starts.
 Reveal your strategic intentions and capabilities:
Offer to match competitors’ prices, offer everyday low
pricing, or reveal your cost advantage.
 Compete on Quality: Increase your product
differentiation by adding features or build greater
awareness of existing features and benefits. Try to
emphasize the performance tasks in low-priced options
and co-opt contributors. Form strategic partnerships by
offering exclusive deals with suppliers, resellers, or
providers of related services.
 Check out the
Sara Lee strategy.
What Can We Learn
from Other Companies?
 Check out the Winn-Dixie/ Big Star lessons.
 Ritz Carlton lessons.
What are your Price Responses?
Use complex price actions. How?
 Offer bundled prices: two-part pricing, quantity
discounts, price promotions, or loyalty programs
for products.
 Introduce new products: introduce brands that
compete in customer segments that are being
challenged by your competitors.
 Start simple price actions: adjust the product’s
regular price in response to a competitors price
change or another potential entry into the market.
What else Should you Think about
Before Joining a Price War?
What do you know about your customers and their
price sensitivity? Some consumers are more
sensitive to quality than price. Some industrial
buyers are willing to pay more for on-time delivery or
consistent quality for their own profitability.
Businesses that adopt a one-size-fits-all approach to
pricing need to rethink this approach.
What else Should you Think about Before
Joining a Price War? (Cont.)
 Analyze your competitors’ cost structure, capabilities,
and strategic positioning. Remember many
unprofitable price wars happen because a company
sees an opportunity to increase market share or
profits through lower prices, only to find out that
competitors will respond.
 You need to pay attention to who will respond and
how. Use environmental scanning to identify company
adversaries and their likely mode of operation.
What do you Know about Contributors,
Collaborators, and Other Interested Parties?
A. You need to monitor other players in the
industry who may affect price war
outcomes (i.e. suppliers, distributors,
providers of complementary goods and
services, customers, government
agencies).
B. Contributors may help reduce price
competition by enhancing the products’
value (see Intel examples).
C. What can we learn from McDonalds’s,Taco
Bell and 3M?
What are the Lessons we can Learn?
 What can we expect during fighting it out
and retreat?
 And what can we learn from it’s never too
early to prepare?