Price wars are the worst nightmares for brand managers. This is the easiest way to gain market share for the initiator, but it causes fall in margins for competitors who match prices, and can potentially screw up the profits in the category.
How do you handle price wars when they happen?
1) The easiest way is to match them immediately before the shares hemorrhage begins. When P&G dropped the price of Tide to match Surf in the Philippines, Unilever retaliated by lowering the price of Surf even further almost within the next few days. Be prepared for a long drawn out war though. If you don’t have the cash flow to handle this, don’t try this on your brands.
2) Further increase product differentiation so that consumers will not see you as identical to your lower priced competitors. Communicate your product’s higher value and that it’s worth their money.
3) Do exclusive deals with certain retailers. This will lock out your competitors from these deals, and make your products seem more value for money among these retailers.
4) Bundle deals for your products. When you bundle your products together, consumers find it difficult to ascertain the value of each individual item in your bundle. This will make price comparison more difficult.
5) Flanking brands can be launched. If you don’t want to lower the price image of your existing brand by lowering prices, launch a new flanker brand at cheaper prices to fight the price war instead.