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W EEKLY EDITION SEPTEMBER 11, 2019 Pri ce W ar s: Don't be Tak en Pri soner Par t I By Karleen Kos, PSAI Executiv e Director …continued from page 2 Because price wars have such high cost for everyone, it is a good idea to consider other options before adopting a business strategy aimed at being the low - cost leader in your market or before responding to a competitor's aggressive price move with a retaliatory one. Let's look at some things you can consider. Do your homew ork. Most of the time, a price war starts because: • somebody believes prices in a certain market are so high that there is room to make money for less. • someone is willing to buy market share even if that means cutting margins or possibly taking a loss in the short term. These conditions are the kindling for a blaze that is ignited when business decision makers (a) don't know each other well or have a g ood relationship with one another and (b) have the idea that a price cut is an easy, quick, and reversible thing to do. In fact, not all price wars are bad. There are cases when it is actually defensible to start a price war – though those situations are more often the exception than the rule. So it is in every business decision - maker's best interest to understand the dynamics of price wars so they can make reasonable choices about whether to formulate, fight or flee a price war. The first step is analy sis before action. Consider a scenario in which a small portable sanitation company suddenly finds that its largest competitor has cut prices to a level well below the small company's costs. • One option the smaller company can think about is to lower its p rice in a retaliatory move. That action would quickly lead to business - ruining losses. • Another option is not to be hasty. The smaller company can take the time to make some phone calls to find out if the competitor's low prices are being offered across - th e - board. If the research shows that the large adversary is essentially attempting to drive the smaller company out of its market by undercutting its prices locally while still charging high prices elsewhere, there are courses of action available. For insta nce, the manager of the small company can let customers in the competitor's higher - priced markets know that the price - cutter is offering special deals in another market. This may or may not be something you want to do, but it is a legal option. Another thi ng the small company leader can do is call on local customers. Make sure they are happy and ask them for their support. Make the case that if the smaller company is forced out of business, its customers would be facing a single behemoth provider who could raise prices and/or lower service quality at will. Both of these approaches are legal, and they avoid or minimize price cutting and the downward spiral of a price war. P AGE 8 CONTINUED ON PAGE 9