Thursday, August 19, 2010

Price Wars

Procter & Gamble is defending its market share with price cuts in batteries, shampoos, liquid detergent, and other categories. To get ahead of rival Energizer, it added more batteries to its Duracell battery packages, which meant customers were paying less per battery. Then Energizer fought back with lower prices, which drew P&G more deeply into what has become a battery price war.

But are price wars worth fighting? One classic Harvard Business Review article by Rao, Bergen, and Davis suggests that marketing managers pick their battles carefully:

It is generally wise to not stir a hornet's nest by starting a price war with a competitor that has a significantly larger resource base or a reputation for being a fierce price warrior.
Ralcorp, which owns the Post cereal brands, touched off a breakfast cereal price war earlier this year by cutting prices. Now Post's profits are hurting, as are Kellogg's profits.

Marketers of e-book readers have become embroiled in a price war that is bringing the category into the mainstream and pushing profits down, down, down. Only three years ago, Amazon's Kindle debuted at $399 and today there's a $139 Wi-Fi-only model. All the players in this price war are big enough to keep it going strong through the holiday selling season.

Watch for more price wars as the economy remains sluggish and marketers fight for every customer, dollar by dollar.

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