Don’t react with your pricing and follow them. You need to try and avoid following their price down at all costs; it’s a negative sum game; it’s the primrose path. Take a pill, lie down and re-read Chapter 11 of “The Strategy & Tactics of Pricing” 5th Edition by Nagle, Hogan & Zale. This doesn’t directly cover what to do in the event of an inadvertent price move which could lead to an unintended price war, but it will help you develop the framework within which you will need to make your decisions. Before you respond, you will need to think through how the competition will respond to your response, how you in turn will respond to that, and so on. The extra twist is how you think that they made the mistake – the inadvertent move – in the first place. Will a response just compound the problem by pushing your competitor to make more or less the same mistake again? Another reason for not responding.
Put out feelers to find out the extent of their communications to customers and channel partners; check out their website, industry press, and social media. Monitor the situation. Be extra vigilant. Increase the frequency of your competitive monitoring.
In the first case that I mentioned in my previous blog, following the competitor’s downward price move would have more likely make it difficult for them to see that they had made a mistake in the first place. Competitor premiums would have returned to their “normal” level. Monitoring competitor premiums would have been the one, and perhaps the only analysis that they were performing. You’re starting to get more insight into what metrics they do and do not monitor. Useful. Following them down and normalizing the premiums would reduce the probability of them noticing and correcting their error. And this is what you want them to do, notice that they made an error and correct it.
In the second, it was in a way gratifying to note that all our competitors had ignored our super low pricing. Remember, our list prices were lower than everyone else’s street prices (list minus average discount). All our competitors had ignored our pricing. Not some of our competitors, all of them. Not some of pricing, all of our pricing. There was no mention of our super low pricing anywhere in the press or online. It was as if our prices hadn’t existed. This was good news. They – we – somehow hadn’t trashed the margins in the industry. It left the door open for us to raise prices and remove a potentially destabilizing threat to the profitability of the market.
In the third, not raising prices in the face of a weakening local currency would have made us miss our US$ financial targets and also – because the competitor premiums would have been “normal” – there would have nothing to indicate to our competitor that might want to consider raising prices too. We had to raise prices, and keep on raising them, even if they didn’t.
So how did these situations resolve themselves?
