Responding--Really Responding--To Other Students Writing by Richard Straub
Importance of responding to Competitor's Price Changes
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Transcript of Importance of responding to Competitor's Price Changes
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Importance of Responding
To Competitor’s Price
Changes
© K.NirushanFaculty of Commerce & Management
Eastern University, Sri Lanka
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Introduction
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Competitors
Competitors are companies that satisfy the same customer needs.
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Price changes
Competitor’s may change their prices under two conditions:
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Why a firm should respond to competitor’s price
change?
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1. Most customers are price-conscious
1 Lunch Box Rs.100 Ok.. Just Rs.80
Akka ShopPragash
Shop
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2. There are several competitors with quality products.
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3. Product features are easily copied and products are close substitute.
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4. Can get information about the competitors cost structure.
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5. Some competitors are financially strong.
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6. Sealed-bid pricing conditions
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Assessing and responding To
competitors price changes
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No
Yes
No
Has competitor cut price?
Has competitor cut price?
Will lower price negatively affect our market share and profits?
Will lower price negatively affect our market share and profits?
Can/Should effective action be taken?
Can/Should effective action be taken?
Hold current price continue to monitor competitor’s
price
Hold current price continue to monitor competitor’s
price
Reduce priceReduce price
Maintain price add valueMaintain price add value
Improve quality and increase price
Improve quality and increase price
Launch lower-price “Fighter line”
Launch lower-price “Fighter line”
Yes
Yes
No
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Limitations of responding to the competitor’s price
changes
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Cost concentration – If a company’s cost is higher than competitors, it may not able to price at or below competition and survive.
Customer thinking - If a customer use price as an indicator of quality, they may avoid products priced below competition
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Economic View : Importance of responding to the competitor’s price
change
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P1
P2
Q1 Q2
P1
Q1Q2
Coca-colaPepsi
Price Price
Quantity Quantity
Suppose the price of Coca-Cola decrease from p1 to p2, this would cause people to consume more Coca-Cola (Quantity increase from Q1 to Q2) because people thing in price wise coca-cola is cheaper than pepsi, so they switch their consumption from pepsi to coca-cola. Therefore pepsi will lose their demand. At this time pesi should respond to the coca-cola’s price change.
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Practical example
Jordan says that Gillette is adding a razor blade to their 4-pack. And raising the price $5.A couple of weeks ago, I was at Target, and I saw that all of their Mach 3 cartridges were on clearance. As a Mach 3 user, I was kind of concerned as to what was going on. I hoped that they weren't discontinuing the Mach 3 and Mach 3 turbo and forcing everyone to buy their newest razor.Last night I was at the grocery store and wandered down the shaving aisle, and lo and behold, Mach 3 razors now only come in a 5-pack. Not only that, the price has been jacked way up.
A 4-pack of Mach 3 turbo blades was about $8.99. The new 5-pack costs $13.99. So they give you one extra razor for extra 5 dollars. Thanks, Gillette. I am now switching to Schick.
(http://consumerist.com/2008/03/gillette-charging-an-extra-5-for-one-additional-razor-blade.html)
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Conclusion