How To Fight A Price War - Presentation Transcript

1. How to Fight a Price War 2. You can download this presentation at: freepresentationslides.blogspot.com Please visit freepresentationslides.blogspot.com for more presentations on marketing, strategy and case solution 3. How to Fight a Price War o Price is one of weapon to ward off competitors. By creating low prices. o Cutting price and joined to the battle is a easy and quick action, but its give consequences to the companys profitdecline profit, margin became smaller and smaller. Also diminish consumers perception of quality. 4. How to Fight a Price War o A good managers will avoid a price war as could as possible. Consider other optioncustomer service, improvement quality, brand awareness, etcthan starting a price war. o Even though managers decide to join the battle they will look and prepare the resource. Good diagnoses involve analyzing four keys areas in the theater of operations. 5. 4 key areas of operation o Customers issues Price sensitivity, customer segments that may emerge if price change. Evaluation of customers and their price sensitivities can provide valuable insight about whether should join the battle or consider some other strategy. Some consumers are more sensitive to quality than price, cutting price may diminish costumers perception of quality. 6. Contd o Company issues Businesss cost structures, capabilities, strategic positions. Possible factors to cutting factors. Outsourcing and development of technology could affect to cost of doing business. 7. Contd o Competitors issues Rivals cost structures, capabilities and strategic positions. o Contributor issues Suppliers, distributors, providers of complementary goods and services, government. 8. Ways to Fight Price War Non Price Responses Example Tactic Form strategic partnerships by offering cooperative or exclusive deals with suppliers, resellers or providers of related services Co-opt-contributors Increase product differentiation by adding features to product, build awareness Compete on quality Offer to match competitors prices, reveal your cost advantage Reveal your strategic intentions and capabilities

9. Ways to Fight Price War ( Contd) Price Responses Example Tactic Adjust the products regular price in response to competitors price change or another potential entry into the market Deploy simple price actions Introduce flanking brands that compete in customer segments that are being challenged by competitors Introduce new products Offer bundled prices, two-part pricing, quantity discounts, price promotions, or loyalty programs for products Use complex price actions 10. Fight It Out o Although we feel strongly that direct, retaliatory price cuts should be a last resort. Impossible to avoid price war in some industry, i.e. PC industry When a competitor threaten your core business, a retaliatory price cut can be used to signify your intention to fight long and hard. 11. Long-run Implications of Joint the Battle o A pattern of price cutting may teach customers to anticipate lower prices; more patient customer will defer their purchase until the next price cut. o A price cutting company develops a reputation for being low price, and this reputation may diminish of customer perception about image and quality o Price cuts have implication for other player in the market, whose self interest maybe harm by lower price 12. Retreat It Out o Develop another core business beside price o Consider other optioncustomer service, improvement quality, brand awareness, innovation, etcthan starting a price war. o example; Sara Lee, DuPont, 3M

How To Survive a Price War

As the recession churns on, price warfare is on the rise. You have a choice: drop your prices or defend your prices by selling value. Unfortunately, the old approaches to selling value dont always work. Customers are focused on cash they dont have enough of it, they cant easily borrow it, and theyre spending as little of it as possible. To sell value during a recession, you must speak the language of money. Heres a story (authored by Robert Nadeau, managing principal of the Industry Performance Group) that explains how to do this Lets face it: price warfare can destroy a business. Heres the scenario: a sales manager named Mike manages 25 salespeople for a U.S. manufacturer. During the last recession, his company slashed prices. This kept customer orders flowing in and kept the plant running. But then things got ugly. Competitors offered deeper discounts, and Mikes sales team reacted by negotiating numerous special pricing agreements with customers.

The company held onto customers, but they lost sight of profitability. They suffered large losses and required major financing to stay in business. After the economy recovered, the message from Mikes senior management was loud and clear: No more special pricing! Mike sent his sales team to a training session on value-added selling. They learned to crush price objections by stressing their products quality and reliability. They learned to emphasize their companys 50-year history of innovation, integrity and dependability. In the years that followed, value-added selling appeared to work. Mikes salespeople talked about value, and customers seemed convinced. But when the current global financial crisis hit, customer demand dried up. Customers delayed even necessary purchases for as long as possible, and when they were finally ready to buy, they demanded lower prices. Mike had never seen it this bad. Still, his upper management insisted that he and his sales team defend their prices. The company could not start going down the slippery slope of special pricing again. In his weekly conference call with his sales force, Mike tried to rally their spirits. Lets get back to the basics, he said. Remember your value-added selling skills. We can make it if we emphasize our value. But as the weeks wore on, they were losing business to lower-priced competitors. Morale was sinking. Something had to give. Mike wanted to know why value-added selling had stopped working. He decided to call several customers who had switched to cheaper competitors. One former customer told him, Im under huge pressure to cut costs. I have to show my boss what were getting for our money. I understand, Mike said. But werent our higher quality and reliability what you were getting for your money? Your product is definitely better, she said. But we need to see what were getting for our money. Mike suddenly realized the problem. He wondered if his salespeople had realized it, too. During his next conference call, Mike posed a question to his sales force. We quote our price as a dollar amount, he said. But how do we describe our value?

One salesperson replied, We remind customers of our quality, reliability and long reputation. Right, Mike said. So does anyone see the problem here? Yes, another salesperson answered. Were quoting them the price in dollars, but were not presenting our value in dollars. Mike arranged an on-site training session for his companys next sales meeting. This training guaranteed that it could teach salespeople how to calculate value in dollars. During the session, the trainer explained, When customers are focused on cash and you only offer them promises of value, they will seek the cheapest price. You need to describe your value using the language of money. Working in teams, Mikes salespeople figured out how the quality and reliability of their products reduced costs for customers. It turned out that these cost savings far exceeded any discounts offered by competitors. They discovered that for each of their products that a customer was using, the customer had average annual maintenance costs of $9,500. But for those who purchased a competitors product, these costs averaged $15,000. So even though the competitors product was $700 cheaper, it cost the average customer $5,500 more per year in maintenance costs. Mikes team also learned how to ask questions that would help customers understand their own costs and how much they could save. Mike and his salespeople had learned to speak the language of money. When they put their new skills to work, the results were dramatic. Their higher price became less important when customers saw, in real numbers, how the product saved them thousands more in maintenance costs. For the first time, customers could see what they were getting for their money. Mikes salespeople won back most of the business they had lost. They even took new business away from competitors. Are you like Mike, trying to survive price warfare? What is your products value in dollars? Does it help customers lower costs? Increase sales? Reduce risk? What are your customers getting for their money? Salespeople can defend prices, if they learn how to describe value in words customers want to hear: the language of money.

Do You See A Price War In Your Future?

-- Hotels, 2/18/2009 9:22:00 AM

Revenue Management professionals are currently on a diet of news that cautions them to maintain rate, dont repeat the mistakes of 2001 and dont get involved in a price war. Thinking back to 2001 and 2002, says Ravi Mehrotra, president and founder of IDeaS Revenue Optimization maybe you were working in hospitality but not in revenue management, or maybe you werent even involved in the hospitality industry. Even if you are a battle scarred survivor of 2001 and 2002 and have simply forgotten, or blocked the memories, read on Picture driving around a shopping center parking lot for 10 minutes and then suddenly spotting an empty space right next to the entrance. Triumphant, you speed to the space and angle your car - ready to park. Its only then you see the clear sign that explains that this space is not for you. In most cases, price wars start because a hotel is trying to stem the tide of declining demand, or one hotel figures that they can buy market share using their current profit margins as a trade off. In both cases the option to drop prices to stimulate demand appears as easy, quick and reversible. Is a price drop the easy, quick and reversible solution it appears? Just as parking in the wrong space (for even a few minutes) can earn you a hefty penalty or even result in your car being towed, dropping prices to stimulate demand or buy market share comes with its own set of penalties. Lets face it hotels, like many other businesses, operate in a competitive environment. Generally, when one hotel makes a bid to buy market share through price reductions, any revenue from market share that is gained is soon lost when a competitor retaliates by undercutting the reduced price and the hotel is forced to sell at even lower rate levels that endanger their profit margins.

Subsequently, when these hotels try to increase prices when demand picks up, they will experience resistance from customers. Competitors also may not follow your attempted price increase in the future, making it difficult for you to return your prices to previous levels for some time to come. The biggest penalty of a price war is commoditization If hotels in a market elect to compete solely on price, the only way the consumer or guest can differentiate between different hotel rooms is by their price. This is where the references to the mistakes of 2001 make the most sense. In 2001, hotels were extremely price competitive and markets across the world were engaged in price wars. When you add in internet booking engines to this mix, suddenly the effects of price wars were readily available. Consumers who shopped and booked on the internet could not differentiate hotels by anything other than price. And even those market segments that were not as price sensitive were able to take advantages of lower rates than what they were accustomed to paying all the casualties of a price war. So how do you intelligently deal with competitors who are aggressively moving prices down or are pricing below cost and act as if no price is too low to win more volume? Here are a few approaches for your consideration: Dont make the Price War worse Do not feed the problem and make it worse. If you only use price as a weapon to compete to win customers, you increase customer price sensitivity and the intensity of the competition (you are escalating the war). You need to focus on defining products that target specific customers pricing for differential value in a cost effective way. When faced with a price war your corporate customers might also be pressuring you for better deals on their contracts. For example, they might demand more access to your inventory and request last room availability. Consider awarding this by room type rather than at the hotel level it is not just the price on the contract, but also the terms of the contract that are important. Ensure that the contract allows for re-evaluation of the price and contract terms at regular intervals through the life of the contract based on usage, and that this usage is actively monitored. Price Discrimination, not Price Discounts Learn to fence cautiously. You may consider creating new products to increase your business during periods of low demand. The advantage of offering a range of fenced products is that the market segments that find such offerings meaningful will automatically gravitate to purchasing such new products. This produces previously untapped business and there may even be other untapped business not identified as a specific market segment as well. This will enhance revenues and better capture the existing demand based on the occupancy levels and business patterns. How could you define fenced products? You could look at it from the perspective of being able to restrict the business, e.g. by arrival day of week, minimum and maximum lengths of stay, or advance purchase restrictions.

You can also indicate if there are add-on services to the product such as valet service, free internet access or food and beverage credit and provide the start and end dates for the product availability. The availability date range will enable you to attract customers based on the add-on services for periods that you require their business. You can achieve this by analyzing the overall demand patterns to isolate gaps in existing demand. Look to uncover complementary demand patterns that translate into opportunities for defining new products with the intention of increasing sales without cannibalizing the demand of existing products. The key here is that non-cannibalizing products have unique differentiators built in to allow fencing from existing products. The advantage of introducing new products is that such products can have restrictions that target clearly identified market segments but remember the focus is on achieving increased revenue, not cannibalization of your existing demand. Articulate value, not price The only way to operate at prices higher than competitors is to deliver true value that competitors cannot match. If you do not continue to emphasize your value delivery, you will leave yourself vulnerable and make it possible for customers to price shop your hotel against your competition, even if your product actually delivers more value. This is the time to ensure that your reservations team is fully aware of the value that the various products offer and are confident selling this over the phone. In addition, you need to ensure that your products are appropriately represented on the various internet booking channels highlighting the clear value differentiators. Plan for the recovery, too Lets try not to repeat the mistakes from 2001 and 2002 - spray and pray marketing is not an effective strategy. You will need to invest the time and effort to target specific customers where you have a better chance of winning against your competitor. Decide on new products that deliver additional value at a competitive advantage and ensure that your customers make value trade-offs in exchange for lower price. During these uncertain times, price discrimination and not price-discounting needs to play an important role based on the market conditions. Remember that price cuts in certain markets may get you some volume in the short run, but when you win that volume at your competitors expense, it is likely that there will be price retaliation, and the resulting price war will quickly eliminate the benefit of a short-term share increase. Dont forget - plan for the recovery and for any opportunistic bursts of demand that can occur well before a full recovery is underway. If you position yourself strategically, you can profit handsomely from periods of stronger demand as they begin to emerge. Optimizing revenues over even a very few days can pay off with higher revenues.

About Ravi Mehrotra Before co-founding IDeaS in 1989, Dr. Ravi Mehrotra taught electrical and computer engineering at North Carolina State and held engineering roles, designing solutions to real time scheduling and transportation problems, at Texas Instruments and Anderson Consulting. Dr. Mehrotra graduated from the Indian Institute of Technology and earned his PhD in electrical and computer engineering from Carnegie Mellon University. While an Assistant Professor at North Carolina State University, he invented new models for parallel computing, designed and analyzed both asynchronous and randomized algorithms for distributed processing and reviewed many proposals for key government scientific agencies. Dr. Mehrotra is a holder and co-author of more than one dozen patents. He was recently appointed president of IDeaS, in addition to founder.

Coke, Pepsi uncork price war to beat slowdown heat 26 May 2009, 0001 hrs IST, Ratna Bhushan, ET Bureau Text: Print EMail Discuss Share Save Comment NEW DELHI: Coca-cola India and rival PepsiCo have unleashed a price offensive to beat the demand slowdown, cashing in on falling packaging costs. Prices of cola cans, marketed by the two beverage majors, are now at Rs 15 and Rs 20, the cheapest, so far, in Indian market. Prices of 400-ml, 500-ml and 600-ml plastic bottles too have dropped in select markets by Rs 5. Price cuts are most apparent in cans, identified as a core category growth driver. Instead of importing cans, the two companies are sourcing them locally, which is helping them to cut down the final price. Coca-Cola has dropped prices of all its 330-ml cans from Rs 25 to Rs 20. The new price point is effective for all brands from the Coca-Cola stable Coke, Thums Up, Limca, Sprite and Fanta. PepsiCo recently introduced 250-ml cans of Diet Pepsi at a first-time price of Rs 15. Pepsis 330ml cans and Diet Coke cans, however, continue to be priced at Rs 25. In plastic packs, PepsiCo is highlighting its Rs 20-price point across all brands in 600-ml PET packs in its advertising, pack labels and points of sale. The beverage maker says it will hold on to the blanket price point of Rs 20 this season for all 600-ml PET packs. Our strategy has been consumer-driven and recognises the power of sticky price points. In recessionary conditions, it is even more important for us to offer great value to the consumer and we are seeing success against our initiatives, according to PepsiCo India spokesperson. Coca-Cola has dropped prices of its Minute Maid 400-ml PET packs from Rs 25 to Rs 20. For its 500-ml and 600-ml PET packs, the company has adopted a differential pricing strategy driven by its bottlers in different regions. The prices vary from Rs 20-25 in different markets. In keeping with evolving market conditions, we ensure that the right brand is available in the

right pack and prices. The price rationalisation on cans and Minute Maid is a part of the same strategy, said a Coca-Cola Indias spokesperson. However, the current price offensive cannot be compared to the affordability strategy adopted by the two companies six years back. Both firms are now clocking healthy volume growth in the region of 28-31%, and are hoping to shore up toplines.

Avoiding the Price War

By Amy Kendall, Research Education Specialist Imagineyoure happily going along, you and your competitors seem to have struck a balance within the market and youre comfortable with where you profits are hovering. However, before you know it one of your competitors drops his or her prices, and what are you left to do? Do you follow suit and drop your prices too, and end up with a price war? Price wars are based on the fact that All things being equalthe lowest price always wins the war, and while some businesses can successfully compete by offering the lowest prices in the market, it isnt the ideal position for all businesses. Unfortunately, a price war can often seem inevitable. So, how do you make sure your products remain priced where you want them when all your competitors are dropping their prices? Believe it or not, a price war doesnt have to be your only option. The key is to differentiate your product.
Why Differentiate

In biology, cellular differentiation is the process by which less-specialized cells become more specialized. This property of differentiation is the reason there is such interest in stem cell research. Stem cells are so general and un-specialized, that they have the ability to become any specialized cell in the body through the process of differentiation. A seller on eBay can use the same process to avoid a price war. If we look at our price war axiom a little closer we can see why differentiation works. All things being equal the lowest price wins the war. The reasoning behind our success strategy lies with that phraseall things being equal. If we make things unequal, or differentiate our product, well be able to avoid potentially damaging price wars.

How to Stand Out From the Crowd

Differentiating your product, or describing the differences between your products and services and the offerings of others, makes it clear for buyers the value they get from your listing. And in the end, value, perceived or real, is the only thing that separates one product from another. Value is actually just a perception of your product, and it is often subjective and unique to each buyer. But through your process of differentiation, you illustrate for buyers exactly why your product is more valuable. For example, if everyone else is now selling your product for $1.00 and youre still listing at $2.00, your price is too highunless you can prove that you deliver a dollars worth of additional value! Now, its important to remember that customers are rarely making their buying decision based solely on price, so as a seller you need to optimize opportunities to add value. HammerTap makes it easy to discover ways to add value in two ways.
1. It is a powerful and efficient tool for conducting a competitive analysis. 2. It allows a seller to know which areas of differentiation (bold, highlight, start price...) are important to the current eBay buyers within the market for a given product. Competitive Analysis

A strong competitive analysis can be a great tool as we search for ways to gain advantages over the competition. By closely examining our competitors we can decide our own competitive strategy, and an effective strategy will ultimately allow us to pull ahead of our competitors and avoid a price war. But we can only discover what will work for our product after a careful examination of our competitors and our market. Lets take a quick look at these stuffed animals markets and see what we can fin