The ‘Price Wars’ occur when competitors in a given market segment reduce their prices in order to gain market share or to achieve any short or long term target.
What leads to a Price war?
Different companies could start a price war for various reasons. Historically proven, a price war could be started mainly because of two reasons :
- Short-Term profits. This strategy is often used by mobile companies in order to increase sales dramatically in the short term. To give an example, Samsung and Apple are often seen to engage in price wars. Every year with new version of IPhone coming up, Apple reduces it’s prices of previous versions in order to make more sales. With IPhone 8 and Iphone X coming up in market, Apple has reduced the prices of IPhone 7 and IPhone 7 plus by almost 15 percent.
- Long term market share gain. This strategy is applied mainly by big fishes who have huge amount of cash available in their deposits. Companies like Coca Cola and Pepsi have often waged price wars in order to capture greater market shares. These two giant companies have dominated the soda drinks industry in past several decades.
What to do during a price war?
If you sense a price wars among your competitors, your best bet should be to avoid it. Yes, you should try to avoid price war as much as possible.
I will tell you, why you should avoid a price war?
Majority of price wars are not successful. Companies often start a price wars with various intentions, but market conditions and customer mindset often doesn’t allow it to go all the way. You would mostly end up burning your profit margin and eventually get back to the original pricing.
That’s why you should avoid price wars as much as possible, until of course, it poses a serious threat to your business. If you sense that certain price war is taking away your market share and is not under control, you have no option, but to jump in the big pricing war.
How to win a price war?
Since you have no option but to engage in a price war, it’s time to do some serious thinking. You could basically win a price war with three practically proven strategies.
- Change your product segment : If you are seeing tough competition in your market segment, it’s a good choice to change your market segment altogether. Apple is the most suitable example for it.
Have you ever seen Apple competition in price wars in it’s segment? No right? That’s because Apple has created a whole another level where prices not really matter. If you go on Apple website and check their products, prices would be the last thing that you would see. That’s because customer don’t buy apple products based on it’s price but it’s quality.
This strategy seems very cool but it’s extremely hard to apple successfully. Apple is a suitable example to prove the failure of this technique as well. Apple tried to jump into maps segment but failed miserable. You remember Apple maps right? Apple took it down in less than a year and lost almost 5 Billion on it.
- Make your products stand out : If you can’t change your market segment, to win a price war, you have to apply breakthrough strategies. It could be extensive marketing or for that matter great customer service.
To prove success of extensive marketing, you could consider the case of Vivo and Oppo in India and other asian countries. These two chinese mobile brands have captured huge market share by heavily advertising their products. In the age of mobile brands like Samsung, Xiaomi, Motorola, Nokia etc, these two companies Vivo and Oppo have together captured 38% of the Indian market share in the range of 10000-20000.
If you want to consider great customer service, you can take the example of Amazon. E-commerce market was hugely dominated by E-bay and other small players. Today Amazon’s market share is close to 45% in the world with the presence of big players like Alibaba, E-bay and flipkart.
Jeff Bezos gives the credits to the customer satisfaction his company has provided over the years.
- Stay competitive and keep fighting : If you think it’s extremely risky to try something new, you can stay afloat in the market by continuously fighting in this price war. You can keep an eye on your competitor’s prices and adjust your’s accordingly.
This is what’s happening in Indian telecom industry. Though the companies like Airtel, Vodafone and Idea are suffering immensely with the advent of Reliance Jio, they are keeping themselves alive by competitive pricing. This strategy could be profit eating in the beginning, but it will help you survive through the ‘price war’.