Prices war
Price wars occur as a result of two or more companies reducing the prices of products in order to obtain a larger number of customers loyal to a competing brand. This war may occur with the aim of increasing market share. These wars reduce the profit margins of companies, but the gains that companies achieve from the price war compensate for the losses. Profit margins, especially if your goal in this war is to obtain a larger market share.
Price war strategy
This strategy is one of the methods that the company adopts to obtain a larger share of the market, in light of a number of companies reducing their prices so that companies compete in reducing their prices, which leads to a price war. Despite the success of this strategy with a large number of companies, it may This is the reason some companies incur significant losses that may lead to the collapse of the company and cessation of work. This occurs when the point of losing profits is reached and the inability to bear the cost of the product and sell it at a low price, which may cause harm to the company in the long term.
The reasons that lead to a price war
As we mentioned previously, a price war begins with one company and then other companies enter into it, and the main motive for this war to occur is the desire to obtain a larger market share or steal customers from competitors, but what are the reasons that lead to this war? What are the circumstances that cause companies to reduce their prices? This is what we explain in the following lines.
- Too many products
Increased production and lack of demand for products lead to a surge in unsold products, which sometimes prompts companies to reduce prices.
- The presence of similar products in the market
In the presence of similar products that can be substituted, this leads to some companies lowering prices to increase sales or obtain a larger market share.
- Losing customers to a competing company
When a company loses customers to another company, it sacrifices and lowers prices in exchange for gaining customers again.
- Use a flexible pricing strategy
A number of company managers believe that pricing flexibility helps raise sales and achieve profits in the long term, which makes them tend to lower prices.
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Advantages of a price war
The biggest beneficiaries of the price war are: Consumers Where they can get more products at lower prices.
As for companies, there are companies that achieve distinct goals from the price war, as a successful company in this war can achieve a high profit rate in the long term in addition to attracting a large number of customers.
Disadvantages of price war
Companies that lose in a price war may lose their market share, which leads to a significant loss of profits. This strategy also reduces the amount of competition.
How do companies avoid price wars?
There are many companies that refuse to enter this war, and there are several points that can be used by companies to avoid a price war with competitors, which we mention below:
- Focus on the value of products
Most companies focus on price competition without giving sufficient appreciation to the value of the product, which causes them to underestimate the value in exchange for the price. In order to avoid this competition and entering into a price war, they must focus on the value of the product and what makes it distinctive and different from competitors, and take into account the consumer’s vision of the product and what it aspires to. From purchasing your products and working on pricing the product based on its value.
- Establish pricing guidelines
Establishing pricing guidelines and dividing products according to type and price helps greatly facilitate the search for products whose price suits the desires and circumstances of the consumer. This strategy works to protect the company’s distinctive offers and correct product promotion, which makes the company distinctive among competitors.
- Evaluating the company's performance
There are some points that must be taken into consideration to avoid engaging in a price war. You must know your company’s capabilities and develop a specific policy that enables you to anticipate market movements in the future. You must also know competitors’ prices, in addition to the offers that are presented by either your company or competing companies.
How does a company win a price war?
While there are companies looking for ways to avoid competition and price wars, there are also some companies that use this strategy to achieve their own goals. In order to win this competition, there are some points that may help you achieve your goals and win the price war.
- Focus on product quality
Although price is the most important thing that consumers are looking for, quality is one of the basic factors for any product. Price alone will not be enough to win customers. Rather, in addition to price, consumers also want a good product with distinctive value and quality, so if you want to win the price war, you must focus on quality. Adding other features to create a large space between you and competitors will be enough to attract customers.
- Show your advantages and strengths
Show your strengths and advantages to competitors. This will influence competitors and make them think about backing down from lowering their prices, which will help you win the price war.
- Reduce the price strategically
Work to reduce prices in a strategic manner. You can adjust some prices for specific products for which a price reduction is acceptable, in order to avoid the greatest loss and protect your products.
Hence, the price war always has results and there is a price offered by the companies that enter into this war. There are few companies that can win this strategy if they use it correctly, and avoid mistakes that may cost the company the loss of its profits and market value. .
