Video: Wednesday, 14 May 2014
Companies that do not have the best cost structure can still come out on top in a price war. New research by Associate Professor Patrick Reinmoeller of Rotterdam School of Management, Erasmus University (RSM) shows that a carefully laid battle plan can result in victory – without having an optimal cost structure. It is possible for any company to win, provided it establishes that conditions are right for a price fight; picks a weaker opponent; confines itself to a clearly delineated area; as well as keep everything hush-hush in the run-up to the attack.
Entering into a price war is risky, often takes a longer period of time and is labour-intensive. Therefore, a company first needs to determine whether there is a sound case for a price war. What could justify declaring a price war? Massive changes to the market that have a seriously adverse impact on the company – such as a strongly shrinking market share; an existing business model that has become entirely unfit for purpose; or an attack from a competitor.
On top of that, a company can boost its chances of success by keeping its plan of attack under the radar as long as possible. If a company keeps its imminent price war under wraps and makes no prior announcements, its opponent will receive a double whammy because of the element of surprise. Maintenance of radio silence gives the attacking side more time to carefully work out its strategy for the assault.
Also, an attacking company should carefully define its area of attack; the more limited in scope the area targeted by the attacker, the more effectively a price war can be waged. Finally, it is important to pick a fight with a considerably weaker opponent.
Rotterdam School of Management, Erasmus University
Science Communication and Media Officer
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Rotterdam School of Management, Erasmus University (RSM) is one of Europe’s top-ranked business schools. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who can become a force for positive change by carrying their innovative mindset into a sustainable future. Our first-class range of bachelor, master, MBA, PhD and executive programmes encourage them to become to become critical, creative, caring and collaborative thinkers and doers.
