"In war fortune is variable; therefore, the prudent warrior must not underestimate the enemy. Goethe
We are experiencing a rampage of promotions, which aim to captivate consumers and create a trend of loyalty and closer to the purchase process, the idea is to bring as many consumers to these chain stores, in order to offer not only better prices, but an excellent sales service with an added value that is called timely and efficient attention, in addition to excellent product quality, through this process confidence is being generated and a level of satisfaction is being generated in the client, in such a way that the client feels very important to this company.
But it will be that these warehouses are on the right path, as it is very clear that some consumers always look for low prices, and they do not care about quality and service, fortunately there are some customers who, apart from prices, look for quality in the product and in the service, they also want added value both in the pre-sale, sale and post-sale processes, since the world is evolving and companies are required to go according to world development.
The spread of promotions to which I refer is the one that is going to live in the month of October, since all the chain department stores have proposed to transfer part of their profits to their buyers, and this transfer is taking place price difference, but how can you do this without harming the company?
Since we are always going to meet clients who despite having told them not only about price differences, and even though we have already asserted all our arguments, we have differentiated the value of our product or service compared to that of our competitors, when we have used all our techniques and experience to answer that constant customer objection, but still the customer tells us something like:
"Understand, I can't pay you a penny more than the other supplier" or "There in that warehouse or business I found the exact same product or service cheaper."
If a customer tells you that they will not buy your product priced at $ 1,000 because they get a similar or similar product for less, immediately ask what that difference is.
It is common for the client who agrees to give you that information to do a quick calculation and offer you a percentage as a response: "yours is 20% more expensive" You should know if that number is a close approximation or if it is a rounding that leaves aside some points of difference.
Suppose you go to your manager and ask him that in order to win the sale they should make a 20% discount, and that you get the manager to authorize the discount, and you are convinced that you have made the sale.
You smile satisfied when you give the customer the good news, but your smile becomes a little strained when the customer, while checking the background, tells you: «it is that even with a 20% discount your products are still expensive, in reality the difference it is 22.7% ».
When you spoke to your manager to "sell" him the need to make the discount, he said that if they made 20% they would get the sale, you have lost credibility and valuable time, and you have also left the feeling in the client that the company effectively manages Highest prices.
Imagine now another possibility, that you bring to your client the good news that the 20% discount was granted, before this the client reviews his background, and confirms the purchase at that moment.
What you don't know is that in reality the difference was only 10.5% and that it was skillfully rounded to 20% when your client passed the data on to you.
You made a 20% discount and 10.5% or at most 11% discount was enough!
What happened then? In that case you will have won the sale, but you will also have lost profitability for your company, commissions for you, and also has set an unnecessarily low historical price that you may have to maintain for future sales to that customer.
This little story illustrates the classic way a price war breaks out. It is true that a price reduction is probably the easiest way to increase sales quickly, which is definitely a temptation for any company. Moreover, by reducing the price, a serious mistake is frequently made: forgetting that our actions are going to generate a reaction from the competition.
In our example, you were only concerned with investigating how your consumers would react to a price change, but you did not know what your competition would do.
This is the story where hundreds of companies (in addition to common sense) have shown that the contenders are not going to cross their arms while we gain participation, and a price reduction by a company will generally result in successive price reductions by part of all competitors.
In the end, market shares will remain similar but earnings will fall.
Although this scheme of successive price reductions is the most common form of a price war, there are other forms of competition that are price wars in disguise.
For example, there are markets where the main companies offer promotions weekly, biweekly or for specific periods of time, with which consumers get used to not paying the normal price and constantly change brands and buy the cheapest at the moment.
Likewise, in other markets, competitors increasingly provide better payment conditions to win contracts, establishing a price war where the discount is given by the financial cost they have to absorb.
His mistake, and the lesson that competition is going to react to a price reduction, may seem obvious to experienced executives, but despite its obviousness we can see that price wars continue to exist today and are both by small companies as well as huge companies.
Proof of this is the list of industries that have had fierce price battles in the past years: fast food restaurants, computers, airlines, transport companies, telephone companies, cement and steel, among others.
In all these cases, companies, chain stores, and small businesses suffer from two effects. Firstly, lower prices lead us to obtain lower profits and in some cases losses.
In a second case, low prices became the base price that customers used to pay, since the haggling culture will be generated, where the buyer offers what he considers from his perspective how much the product is worth and, on the other hand, you Since he knows that the client is going to ask for a price reduction, he will inflate the price, in order to reach an agreement and at a fair price.
But if the price war continues, it is very difficult to return to previous price levels without generating a negative reaction from consumers.
As we can see, the price war is not good for any industry and should be avoided. But what must businesses do to avoid entering this negative dynamic?
Before presenting the actions that can protect your company and industry from a price war, it is necessary to understand that in a sales process, the first thing we recover is the variable costs that we incur to produce the good, and that the costs Fixed because they are global, we will need to make large sales to be able to cover them and in this way begin to generate profit. (See Graphic Design).
Graphic design of the sales process and cost recovery
As can be seen in the proposed mindset, it is clear that in order for a company to determine its real profits in a given period, it will have to calculate them using the variable costing system, since, as stated by theorists and scholars, under this method of The true profit is found in the calculation, since it will be calculated based on the volume of sales and not on the volume of units produced, as is the case with the total cost method.
Faced with this situation, it is necessary for entrepreneurs to know the steps that they must take into account to avoid falling into a price war and they will be harmed.
Steps to avoid a price war.
Calculate your optimal price:
In other words, the company must structure its financial system in such a way that it has perfectly identified what the minimum price that it can reach must be, without having losses, it must also be very clear about the maximum price that it can charge for its product or service, since in this way you can propose an optimal price, which will be according to the market and respecting the price policies of the competition and those of the company.
Do not provoke .
This means that you must think carefully before reducing the price to gain market. Paradoxically, companies must be particularly careful in certain situations that seem to lead them towards a reduction in price, such as contractions in demand or low utilization of productive capacity. If the situation is similar in the rest of the industry, the other companies will have to hold on to their shares, which will surely deteriorate the competitive situation. On these occasions it is important that the products continue to contribute to profits and therefore it is convenient to maintain prices.
Don't overreact.
Many times, a competitor is the one who reduces their price, and we who have to react. Before acting, it is important to understand what the rival's reasons are for reducing the price, since it could be something temporary, such as liquidating inventory or generating cash to pay a debt.
There are cases of price wars in which a company lowered the price for short-term reasons and competitors reacted by lowering the price, causing a war that had no reason to exist.
Likewise, customers (and even vendors themselves) tend to talk about the big discounts that competition gives as a way to improve conditions. Therefore, try to verify the information and the reasons before reacting and thus avoid attacking an enemy who had no intention of fighting.
Prevent.
Constantly add value to products. As your product is frequently improved and consumers perceive the value of these differences, the company will be less vulnerable to price attacks.
Another way to prevent an attack is to establish long-term contracts with your Consumers, offering in exchange certain service advantages. These actions make it more difficult for the customer to change providers and therefore partially protect us from competition.
Communicate.
It is important to communicate in industry forums or publications about the need to avoid the price war. These messages are generally made up of two parts, namely: The need to maintain price levels in such a way that companies do not lose and the willingness of the company to enter into a price war.
Know your business very well:
Usually we meet entrepreneurs who are not very clear about what they really sell, just to cite an example, we can say that Varta batteries sells portable energy, unlike what we initially thought of selling batteries, Vick Vaporup, sells the satisfaction of being able to breathe better, and so on it is about knowing very well what it is that we want our clients to understand that we sell.
Finally, it must be very clear, and it must be permanently communicated to the entire organization, that the reason for being of any company is the customer, and that the best way to face a price war is through value processes. added, this means that everyone within the organization must be generating positive strategies that allow the client to understand that in the price of the product, there are not only production costs, but there are quality parameters, good service, attention just in time and recognition as an important customer for our organization.
In this way we will be creating loyalty in our clients and at the same time we will be doing an advertising process, since a satisfied client does not focus so much on prices but on quality and service, and will attract more clients.
