How to Win a Price War

by Patrick Reinmoeller
published by MIT Sloan Management Review, 2014
Ref SMR55309
 

Price wars, writes the author of this article, represent a fundamentally different dynamic to simply competing on the basis of low prices. They begin when competitors aggressively and repeatedly set prices below established levels. This sometimes involves self-destructive behaviour that leads to prices spiralling downwards and the alteration of industry structures.

The author notes Meghan R. Busse’s (Kellogg) findings that there are no winners in price wars: the losers are often forced out of business and the survivors can suffer a long-term squeeze in profitability.

However, using the example of Albert Heijn, a Dutch company in the grocery business, the author shows that under the right circumstances it’s possible for a company to win a price war by leveraging a specific set of strategic capabilities.

The author goes on to explain how companies might be able to achieve success in a price war by establishing five rules of engagement: affirm the need; pick the battlefield; pick the target; stay under the radar; and align revenues with cost structures and rally the support needed to succeed.

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About the author

Patrick Reinmoeller is a Professor of Strategic Management at Cranfield School of Management, UK, where he currently teaches MBA and EMBA core courses in Strategic Management and electives in International Business. He is involved in research and executive development programmes for clients in professional services and manufacturing.

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