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Price Wars – When Is Picking A Fight A Good Pricing Strategy? | PROS

Price wars don’t have to be Napoleonic in scale to have a lasting detrimental effect across an entire industry. As companies fight for market share by lowering pricing on a product, they also lower the product’s perceived value in the eyes of customers. Many years ago, for instance, people thought that spending $2,000 for a laptop was a good deal. But now, nobody in his or her right mind would pay that much for a laptop — unless it was a really nice Mac, perhaps.

As the prices go down, the perceived value also goes down, and takes with it the customer’s willingness to pay. For a general purpose laptop, you might consider $800 or $500 to be a good value. If it’s for your child, you might not want to spend more than $400.

Rarely do you hear, “I want to declare a price war!” Businesspeople tend to agree that they should be avoided. And yet companies do find themselves locked in these struggles. Often, companies act as if they’ve been somehow pulled into this pricing strategy. They believe that, if a competitor begins pricing aggressively, you have no choice but to match those prices as they keep dropping.

That short-term view is exactly what makes a pricing war so destructive. If you’re taking the long view and paying attention, however, you’re able to pick up on cues from the competition and evaluate their motivations. Before you lower your prices to meet a competitor’s, you need to plan several moves ahead. Gather information and develop a pricing strategy that accounts for your competitor’s likely response, then how you’ll respond, and so on — keeping your endgame in sight.

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Price Wars – When Is Picking A Fight A Good Pricing Strategy?.

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