Think before you decrease
You need discipline and prudence to deal with aggressively low competitor prices. Again and again companies respond to price attacks with knee-jerk reactions, often resulting in escalation to full-on price wars. The consequences are fatal: An alarming 58 percent of companies are involved in a price war and have been for years. Worse – a price war typically has no winner ‒ everyone ends up worse off. That’s why any price reduction should always be thoroughly considered before acting. Why is the competitor cutting prices? How else can you react other than through price? How will competitors respond to your actions? What will the result be for you and the entire industry in the end? Top companies have security systems in place to avoid emotional, exaggerated and irreparable price reactions.
Prevent spontaneous price cuts; accept carefully planned price cuts only if your organization has presented you at least two non-price-related alternatives.
Dynamic pricing has pros and cons
Innovations, trends and new technologies are emerging in increasingly higher frequency – the world seems to be turning at an ever faster pace, and price setting is naturally affected by these developments. If you adjust your prices quickly to demand, capacity utilization, the competitive situation or the time of the day, you can tap added profit potential – dynamic pricing is the name of the game. But beware: With increasingly faster and smaller price adjustments (e.g. prices at supermarkets and petrol stations change hourly, online prices depend on which device you use) transparency, simplicity and fairness end up suffering. Customer acceptance and trust are at risk and it’s crucial to have good judgment here. For example, the travel industry has been using dynamic pricing for years now. However, whilst their customers accept the model, they do so grudgingly and only to a certain degree.
Don’t think of dynamic pricing as a cure-all. Introduce dynamic pricing in small steps and analyze customer acceptance and the lasting effects on volume, revenue and profits every step of the way.