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?
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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.
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.
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