I would like to share a living situation in a business environment. I suppose the majority of the members are or have experienced this phenomenon called price war. It is so human that we could be trapped in the price war within our business environment. Price war sometimes could be healthy to the market. However as the old one said enough is enough, there are some limitations that should be set in order to allow us to still obtain profit.As I said before, I was working in my own restaurant at the early age. We were the first restaurant in our area. Within five years a first competitor occurred and positioned very close to us. They declared the price war and I have to admit our sales dropped. The young David can only see the sales plummet.
After ten years, I started my own business, Klick ‘N Save. We mainly try to focus on the nursery industry. We started to sell the baby furniture, such as rockers, strollers, cots, and swings. In the market we respect our competitors and try to keep the price stable. We did not destruct the price by selling branded items at a very low price. However, new competitors always come to business. Somehow, they think that the only way to crack the market is through price. They sell the items at a crazily discounted price even though they obtained the items at the same price with us. Honestly, the older David is still confused in facing this situation =)
At the end of the day they always give up in the price war. Usually, they decide to increase the price eventually. This is totally understandable since they surely also need profit to keep up and running the business. However, what about the heavily capitalized competitors? Surely they still have a lot of capital and able to afford selling items at the discounted price for the long period of time. How can we beat this price war?
As the Indonesian said “malu bertanya sesat di jalan” in English “shy of asking for assistance would make us fail”. In this very good opportunity I would like to ask the forum for suggestions in battling against this business phenomenon.
Any opinions, suggestions and questions will be appreciated.
David Herlambang
MarketingFirsthttp://www.marketingfirst.blogspot.com/
2 comments:
Hi David,
Found something on Wiki. Hope this might help:
On the other hand, if it emerges that this 'is' a long-term move then there are a number of possible reactions:
1. Reduce price - The most obvious, and most popular, reaction is to match the competitor's move. This maintains the 'status quo' (but reduces profits 'pro rata'). If this route is to be chosen it is as well to make the move rapidly and obviously - not least to send signals to the competitor of your intention to fight.
2. Maintain price - Another reaction is to hope that the competitor has made a mistake; although, if the competitor's action does make inroads into your share, this can rapidly lead to a loss of confidence as well as of volume.
3. React with other measures - Reducing price is not the only weapon. Other tactics, such as improved quality or increased promotion (to improve the quality image, perhaps) may be used, often to great effect.
4. Split the market - A particularly effective tactic (most notably used by Heublein, the owner of the Smirnoff brand of vodka) is to combine a move to increase the `quality' of the main brand at the same time as launching a `fighting brand' to undermine - by further price-cutting - the competitor's position.
http://en.wikipedia.org/wiki/Price_war
I am curious, by the way, of how your restaurants managed to survive the price war. Could you share a bit more on that?
Dear anonymous,
Thank you very much for your contribution. I will try to implement those strategies in my business. At the end of the day, life is about trial and error. I will keep you up to date on the steps that I will take to overcome the price war challenges and the results.
As stated before, I was probably still fifteen years old when I started to work in my family restaurant. I did not even think about business at that time. However, I can recall what my father at least did to overcome the price war.
• Probably he reduced the price in order to match it. However, the competitor seemed to further anticipate this possibility. Therefore, they hold the discounted price for quite a long period of time (approximately one year). On the other hand, being pampered to be the only restaurant for a couple of years in the area made us did not actually create a system that can increase the efficiency and the effectiveness of the restaurant. Hence, small sales plummet could really affect the synergy of the company.
• He also tried to increase the quality of the product by adding the portion of the food. However, no promotion was done. My dad runs his business in the conventional way of thinking. He does not believe in branding and other aspects of marketing. Therefore, it was a bit hard for us in promoting the restaurant since there was no perceived identity of the restaurant.
That is the small information that I could still remember about the restaurant.
I really appreciate your assistance. Please feel free to drop me a line in order to communicate further about everything. I learn something now =)
Cheers,
David Herlambang
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