Northwest retained its overall fare structure, minimizing internal changes and fending off Sun. Rather than retaliating with across-the-board price cuts, Northwest discounted prices only on flights competing directly with Sun’s offerings. Discounting selectively lets you counter your competitor’s pricing ploy-without undo risk.ĭiscount carrier Sun Country Airlines challenged Northwest in its own Minneapolis-St. This has let FedEx accumulate formidable “brand equity”-and fiercely loyal customers. Raising customers’ performance concerns makes them reconsider abandoning you for cheaper competitors.Įmphasizing that packages will “absolutely, positively” arrive on time, FedEx plays on customers’ fears when shipping time-sensitive documents.
Alert customers to price-cut risks-especially low quality.The result? The Ritz avoided damaging its reputation and earned an 18 % gross operating profit. The Ritz-Carlton sidestepped the price war and found low-cost ways to keep pampering guests. By understanding your different customer segments’ price sensitivities, you can keep your prices respectable-and your customers from straying.ĭuring the 1997 recession, Malaysian luxury hotels dropped their room rates-but then couldn’t afford to offer pricey accoutrements. Sara Lee uses its low costs as an implicit threat, which discourages its competitors from considering a price duel. This signals to them that, if forced, you could drop your prices to a level others can’t match. Let competitors know that your costs are low. But if you have to respond-e.g., because a competitor is threatening your core business-try these tactics: Non-price Tactics Getting pulled in can hurt your margins, teach customers to wait for the next price cut, and saddle you with a low-quality reputation. The best way to escape a damaging price war is not to jump into the fray at all. This article outlines both non-price and price tactics that let you walk away with the spoils of war. Emphasize your product’s quality, for example, or superior service. To survive a price war unscathed, you need weapons other than price cuts. Witness the great price battle of 1999 in the long-distance phone industry: after the dust cleared, AT&T, MCI, and Sprint all saw their stock prices dip by as much as 5 %. Yet they’re increasingly common in electronic and traditional commerce. Price wars-retaliatory cuts in prices to win customers-can devastate managers, companies, even entire industries.
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