1. Under what environmental conditions are price wars most likely to occur in an industry? What are the implications of price wars for a company? How should a company try to deal with the threat of a price war?
Answers
Answer:
Price wars are generally associated with environmental situations where supply outstrips demand. As the price war rages on, the profit of the Company drops with the downward movement of the selling price.
In the event of a price war, a Company should curb wastage, curtail unnecessary expenses, reduce selling and distribution expenses (e.g., moving from road to rail as mode of transportation), bargain harder with raw material suppliers for better prices, enjoy suppliers' credit for a longer period, de-bottleneck the production process/machinery in order to make it more efficient and so on.
As far as the product or products that could face price war are concerned, a Company should always endeavour to upgrade the product(s) quality and improve the performance. The manufacturer must also try to make the product(s) as different as possible from competitive products, in order to give it/them distinct identity/identities.
Answer:
Price wars are most likely to occur in an industry in which savvy customers force down a company's prices by pitting competitor's product against one another. Price wars are also likely to occur if there are new entrants to the market, who are able to come in at a low price to buy business. This is especially true if the company is well funded or has name recognition. An example of this would be the price wars involved in the smart phone industry. Apple's entry in 2007 was initially pricy, but the category has been reduced to price wars as more manufacturers are involved and consumers play each company off the other.
Another environmental condition for price wars is when an industry's product is seen as a commodity. The airline industry is viewed in this manner, and at various times price wars ignite. This might be due to a carrier entering a new market (as discussed previously) or as a way to gain market share ...