The price wars is a business strategy where businesses continually reduce prices to gain market share. It is one of the most effective business techniques.
Attracting customers can never end at a point. Thus, we have mentioned the basic and advanced forms of the price war in this article to let you win your business in this price war.
Price War Definition
Price wars refer to decreasing the prices of your products to gain an undue advantage over other competitors. It allows you to capture a larger market share. It helps generate more revenue in a business and expands your market share. It can work best in both short-term and long-term strategies.
You should consider the price war strategy carefully, as it will directly impact your business income statement. It requires a lot from any business, including a thorough understanding of the competition and rivals. It will allow you to take the actual benefits of the price war strategy.
What is Competition Based Pricing?
Competition based pricing refers to a pricing strategy of the products and services depending on what competitors charge. Simply put, you don’t look at production cost but only at your competitors. It doesn’t cover only the pricing aspects but also various other elements too.
It includes the latest product designs, market decisions, and price competition. There are various competitive pricing examples in the market. You will also decide on the targeting niches of your industry and try different designs based on competitors’ actions.
Cause & Effect of Price Wars
Price war strategy refers to indiscriminately following your competition. It would have specific cause & effect for your business. For instance, if your competitors are losing due to their wrong finances, you will also have to face the same losses due to copying their strategies.
There are various other causes and effects too. We have mentioned some of them below to make you understand better.
Causes of Price Wars
- When the market gets highly competitive, business people generally apply price wars and slightly reduce the price of their product to capture the market share.
- It helps capture more market share, eventually bringing you more revenue.
- Price war generally in case you want to penetrate the ongoing market. However, you have to offer reduced prices.
- Businesses which are about to go bankrupt generally utilize the price war strategy. It helps them improve their liquidity.
Effects of Price Wars
- The businesses willing to utilize the price wars must forget the profit margins and start considering covering the market share.
- To properly gain the benefits of the price war, you have to use the appropriate market strategy and network and adequately understand the competitors and market.
- The gain players of the market can always bring a drastic reduction in their prices, which constantly threatens the other competitors.
- Once your business enters a price war, it will affect your brand name. In fact, after reducing the prices, it won’t be easy for you to increase them again.
What is the Price War Strategy?
The price war strategy is one of the common strategies in the business market. Here the businesses reduce their product prices to gain an edge over the competition. All the business rivals do the same at times. Thus, it is known as a price war. It indicates a war between various business people to gain more market share.
Price wars are generally widespread in industries where the competition is high. The motive of the businesses behind these price wars strategy are as follows:
- Increase in business revenue.
- Snatch the rival’s customers.
- Capture the larger market share.
Therefore, the price war strategy is one of the beneficial but risky price strategies.
4 Strategies To Win The Price War
There are four primary strategies to win the price war. If you also want to succeed in the price war, you should have a look at these strategies:
1. Thorough Research
Firstly, you should research why your competitor reduces their prices. It would help if you did not start the price war directly because your competitor is decreasing costs. It could also be possible that they are just trying to end their inventory.
We would also suggest you investigate your market too. Even after doing all these things, if you find that the price reduction is due to the price war, you should ask yourself some questions.
- Would it be worth participating in the price war?
- Would it impact my business positively or negatively?
- Will it get me customers or lose them, the customer?
- What is the look of the market?
2. Add Value
The price war is not only about lowering the prices of your product till you can afford it. Instead, you need to play with the customer’s mindset. You can also win customers by adding additional value to your product instead of reducing its price.
There are certain additional offers for you which will help you win the price war:
- You can start giving away a gift with each purchase of your product.
- You can also utilize the bundle pricing and provide an additional discount if your customer purchases 2-3 products simultaneously.
- Provide additional reward points to your customers if they shop for a particular period.
Thus, all we can recommend to you is to be as creative as possible while offering additional value. It will make them purchase your products instead of your competitors.
3. Advertise Your Offers
It is always essential to market and advertise your offerings so your customers can know what distinguishes you. It will make the customers know which business offers the best deals.
Thus, the more you advertise your business, the more your business will become trusted. It will simply create your authority in the market. Even marketing or advertising often produces better results than just lowering prices.
A successful businessman does not blindly follow the rules but tries creativity in the offerings to win customers. Thus, advertise your social media and website, and also take the help of email marketing.
4. Brand Reputation
All the customers always believe in purchasing the goods at one time from the most reliable brand possible. Thus, it would help if you took that reliability in the market.
In simple words, you should not just focus on capturing more customers by reducing the price but try to build a business reputation that will allow you to capture more market share for a more extended period, not just till your prices are low.
You should do a SWOT analysis of your business and figure out your strengths, weaknesses, opportunities and threats. It will showcase many challenges in front of you and you can solve them.
Price War Example
We have mentioned here an example that simplifies the price wars. Suppose two companies – Company A and Company B- sell the same products in the market. Suddenly, Company A starts selling the products at low prices, and Company B lowers their prices even more. Thus, both companies initiate a price war to fight against each other.
Simply put, the price war begins by reducing the price multiple times from both the competitor companies. Generally, the company with the highest profit margins and optimized cost structure wins this war. It makes the situation difficult for small businesses. However, the right strategy always has more importance over the profit margins.
The price war is one of the most effective but risky business methods. It allows you to capture the market share with minimal effort. It directly impacts the business value of the customers. We hope you like the guide and find all the relevant information regarding the price war.