Customers’ reactions to price by competitors in market place , effects the reaction of Customer too
When a competitor raises its price in the homogeneous product market , the other firms might not match it. they will comply if the price increase will benefit the industry as whole .
but if one firm does not think that or industry would gain , its non – compliance can make the leader ( and others who followed ) resist the price increases .
In Non – Homogeneous product markets, a firm has more latitude in reacting to a competitor’s price change , Buyer choose the vendor on many considerations: service , quality , reliability and other factors .
These factors desensitize buyers to minor price differences . Before reacting ,
Customers’ reactions to price a firm needs to consider the following issues.
- Why did the competitors change the price? is it to steal the market , to utilize the excess capacity, to meet changing cost conditions or to lead an industry – wise price changes ?
- Does the competitor plan to make the price changes temporary or permanent ?
- What will happen to all the company’s market share and profit of it does not respond ? are other companies going to respond also
- What are the competitors and other responses likely to be to each possible reactions?
Market leaders frequently face aggressive price cutting by smaller form trying to build market share.
Maintain prices :
The leader might maintain its price and profit margin , believing that
- Would lose too much profit if it reduce price
- It would not lose much market share
- it would regain market share when necessary .
The leader believes that it could hold onto good customers, giving up the poorer ones to the competitors . the argument against price maintenance is that the attacker get more share than expected. the leader panics to regain share and find’s that regaining its mark position is more difficult and costly than expected .
Raised perceived Quality :
The leader could maintain price but strengthen the value of offer . it could improve its product services and communications . it could stress relative quality of its product over that of the low price competitor .
The firm may find cheaper to maintain price and spend money to improve it’s perceived quality than to price and operate at a lower margin .
Reduce Price :
The leader might drop its price to the competitor’s price . it might do because
- Its cost fall with volume
- It would lose market share because the market is price sensitive
- It would be hard to rebuild the marker share once it is lost .
Action will cut profits in the short run , in response to the leader’s price cut , some firms reduce their product quality , services and marketing communications to maintain profits but this will ultimately hurt their long run in market share .
The leader should try to maintain quality as it cuts prices ,Increase price and improve quality
the leader might raise its price and introduce brand to bracket the attacking b