Smarter Pricing: How to capture more value in your market

And customers get the wrong message

A further damaging consequence of a price war is the implied communication to customers. Promoting price cuts simply recommends to buyers that they should select on price alone and disregard benefits. The price war among Dutch supermarkets in 2003 sensitized customers to seek out further discount offers. Chinese car buyers, who had seen prices drop steadily over 18 months from 2003 levels, astutely delayed their purchases through 2005 in anticipation of further reductions.

Price wars can also flag up memorably low prices for familiar products. Seeing CDs on sale at £9.99 in UK supermarkets imprinted a value threshold in customers’ minds. Prices tend to be inflexible upwards and any price increase returning ...