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In the 21st century, marketplaces have become more competitive. This is because the availability of information has become the norm. Consumers can now choose amongst competing products and make an informed choice. As a result, getting customers has become increasingly difficult. This has given rise to price wars on several occasions. Since companies find it difficult to woo customers using other tactics, they have begun using price as a weapon.
Price wars happen because someone somewhere in the industry believes that prices are high and that they can make money by rationalizing them. However, often all competitors follow suit and offer retaliatory price cuts. This often leads to a precipitous decline in the prices which may be good for the customers. However, such extreme price cuts are definitely bad for the industry. For instance, in the year 1992, the airlines in the United States had indulged in an all-out price war. The end result was that air travel reached record highs during that year. At the same time, the airline industry made losses that were enough to wipe out all the profits that they had earned since inception.
The above situation clearly illustrates that a price war is devastating for all the participants involved. It does not matter who wins the war because at the end everyone is worse off. However, price wars are not optional. If one competitor begins a price war, others are often dragged into it. In this article, we will look at some strategies required to sustain and fight in a price war.
Entering a price war can also do damage to the brand equity created. Hence, companies must instead compete on quality because even if they fail, at least the brand equity, which they have spent years trying to build, still remains intact.
Hence companies should instead focus on offering a new product in a new market. Instead of branding itself as a cheap supplier, companies must try to be innovative.
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