6. The Role of Competition in Setting Prices

Question 1

How to respond in a Price War?

Answer 1

Competitor Issues

• Cost Structure
• Capabilities
• Strategic Positioning

Customer Issues

• Price Sensitivity
• Segmentation

Contributor Issues
- Incentives of resellers and allies, suppliers and governments

Company Issues

• Cost Structure
• Capabilities
• Strategic Positioning

(More Details on Slide)

Question 2

Price War - Non Price Responses

Answer 2

• Reveal your strategic intentions and capabilities (reveal cost advantage)
• Compete on Quality (built differentiation, show existing differentiation)
• Co-opt contributor’s (form strategic partnerships)

Question 3

Price War - Price Responses

Answer 3

• Use complex price actions (bundle prices, quantity discount)
• Introduce new products (flanking brand to compete with cheaper products)
• Deploy simple price actions (adjust the product regular price in response)

Question 4

Characteristic of a Price Leader

Answer 4

Superior market information

• Detection of price cutters
• Understanding of demand

Leads in market hare and has lowest cost structure

• Carries weight with competition
• Has the ability to punish

Clear strategy ad willingness to assume role

• Long term focus
• Management evaluated on long term performance