Sometimes competitors make price moves which have the potential to start an price war. But how can you tell if the move was deliberate or not? This is critical because you will need to respond to those situations very differently. Well, you can’t immediately tell for sure in all cases, but there are some tell-tale signs. In one case I came across a competitor which had reduced prices across the board in a large market in a region where it had its largest market-share and more importantly its highest relative market-share (their market-share/our market-share). I investigated this very discreetly with a few key regional team members and to see if our competitor had been communicating anything to customers or the channel, and they had not. If this was intentional there would have been some sort of communication out there otherwise they would not have been able to fully leverage the price move. As we pondered on our competitor’s motivations (as we always did), we couldn’t find a single reason why anyone with a pulse would intentionally attack on price where they had their largest relative market-share, and concluded that they had done this unintentionally.
In a second case, I started working with a small division in a company and I realized that its products were massively under-priced compared to the competition. It’s list prices were lower than the competitors’ average discounted prices (street price). Not just one competitor, all of them. Think about that: list prices lower than competitors’ street. That effectively it had created the potential for a price war without even realizing. And because it didn’t realize this – it was still growing more quickly than all the other divisions in the company which had helped it evade internal scrutiny – it hadn’t fully taken advantage of its aggressive price position.
In a third case, one of our major competitors didn’t raise prices as that country’s currency declined in value rapidly against the US$ during the 2008 financial crisis. As we – and our other competitors in this US$ denominated industry – raised our prices across the board three times, this one competitor did nothing. We observed this for about nine months and they still didn’t move. Nor did they try to take advantage of their aggressive price position; there were no communications to customers or the channel. They didn’t have an uptick in sales or market-share. They were asleep at the wheel.
So how do you try to stop a competitor’s inadvertent move from turning into a fully-fledged price war? More to follow.
