Low Prices = More Customers? Not Always
5/1/2006
Wal-Mart, Southwest Airlines, and Dell Computer are famous for their low prices. But before you follow their lead, consider the downside of cutting prices. An excerpt from the new book Manage for Profit, Not for Market Share.
by Hermann Simon, Frank F. Bilstein, and Frank Luby
By arguing against price cuts as a form of competitive reaction when you perceive a competitive threat, we hope to convince you to plan your responses more carefully and consciously by thinking through the consequences first. In some situations, your competitor may force you to make this decision, because it has cut prices itself or entered your market at a much lower price point.
But in other situations, companies decide to cut prices voluntarily, with no prompting from competitors and—as we show in this section—hardly any prompting from customers either. They decide to cut their prices out of sheer devotion to the idea that lower prices will revive......
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