Are you in a situation where your competitor taking market share from you? Have they cut their prices? Now this situation will require long term analysis, but these questions may help stop you from making decisions you may regret in the future:
- Are they following an established trend for companies in the market to trim prices?
- Were industry-wide price reduction expected, and is this competitor is the first to implement this?
- Does the price cut affect a whole range of your rivals’ products or just one or two key ones? If only one or two, then why?
- Is the decision a long term strategy or a short-term move likely to be reversed soon?
- Have your rivals management team decided to grab market share rather than maintain profit margins? Why and what are the consequence for them?
- Do they have too much of the product and they want to get rid of it?
- Do you think it is cash-rich competitor may be trying to drive weaker rivals out of the market by launching a price war?
- Is it a sign of weakness in the marketing, sales, purchasing department of your rivals? Do they have too much stock?
- Is there an urgent need to boost cash flow at the expense of profitability? Again, why?
Zero-sum game. A situation where a competitor seizes market share from a rival, but the market’s total size remains the same. Accurate anticipation has two components. First, the detecting indications of change in competitors intentions and actions – required ongoing search and analysis. And the evidence. It has to be interpreted using hypotheses- judged in the context of the industry.
Why are they reducing prices?
Competitor announces a price reduction:
- The company is merely following an already established trend for players in the market to trim prices
- Lower industry-wide prices were expected, and a competitor is the first to implement this.
- The price cut may be across the full range of the firm’s products or restricted to part of its offering or even just a single product.
- This decision could be a long term strategy or just a short term move that will be reversed relatively soon.
- The firm’s management might have decided to capture the market share rather than maintain profit margins
- They may have too much product, and they want to shift it
- A financially strong competitor may be trying to drive less prosperous rivals out of the market by launching a price war.
Without this contextual knowledge, numerous hypothesis can be tabled. But no judgement can be reached because many of them are plausible in themselves.
Look for the signs
Look for other data to support or contradict a hypothesis.
- Expansion of production may require installing different machines and workers hired or the extension of the premises. This may be reported in the media, revealed in the recruitment press, filings for planning permission or to meet environmental regulations, detected by direct observation or only industry gossip.
- R&D projects may be referred to at scientific conferences and in publicly available regulatory documents or indicated by the filing of new trademarks or patents
- A new product launch comes with the arranging advertising campaigns, hiring new ad agencies, booking venues inviting the press to launches.
This article focused on a situation where competitor taking market share from you?