Price War

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How should a company try to deal with the threat of a price war? Fontinelle (2010) believed that price war has a big impact which leads to a string of price reduction that vaporizes the profit margins. There are some solutions which can cope with the menace of a price war. To start with, Rao et al. (2000) showed that the manager of a company should take into account of other options before answering the price cuts call. The manager should consider matching price cut is a good choice or not before deciding. Moreover, additional information about the price war is needed to be figured out immediately. Does the discounted price apply for a short period of time or long term? In addition, the terms and conditions for the promotion are also involved. For example, Starbucks drove their customers crazy because of the 50% discount Frappuccino in happy hour campaign. In addition, it also attracts more new customers. Meanwhile, their competitors should consider about applying the same strategy or do nothing. The competitor’s managers must be particularly careful as the threat of price war is high. In addition, they may get more disadvantages instead of advantages as if their brand is not as strong as Starbucks. Misreading the competitor’s purposes which is one of the main factor causes price war can lead to unavoidable price war (Little, 2003). Therefore, correct information about competitor’s intentions must be obtained carefully. The reason behind the price cuts must be figured out to have the right respond. With the same example above, the competitors’ managers should research in detail about Starbucks promotion campaign to have their suitable marketing strategy. According to Rao et al. (2000), marketing communication strategy plays an important role in ensuring the competitors understand the reason behind the company pricing tactics which assists in avoiding a price war. Advertisement should not only focus on the price but also the quality and benefits of the product....
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