Beating the Commodity Trap

FOUR

The Escalation Trap

How to Manage the Escalating Momentum of One-upmanship

Escalation is what happens when companies become locked into a form of one-upmanship—each trying to outdo its rivals by offering the customer more benefits at the same or a lower price. Customers get more and more for their money, and companies lose their margins. This is the escalation trap (see figure 4-1). The dilemma is that no one can be the first to blink. Managers facing escalation can’t stand still or they will lose market share to rivals. Meanwhile, engaging in escalation leads to price and benefit wars that cause declining margins and profitability.

The danger signs of an escalation trap are:

• You feel like you are locked into an arms race with competitors, ...