Question: “How about talking about how to end a price war in the B2B space?” – J
Answer: Ouch. You are hoping for a magic bullet, and I don’t have one. However, let’s look at this logically and see if we can come up with something that might work. The problem is that you can’t control your competitor’s actions. You can only provide incentives.
Let’s be super clear. Do NOT talk to your competitors about price, unless you think you look good in orange jumpsuits. Just don’t do it. However, if they too are looking for ways to get out of the price war, you may be able to “communicate” with them without talking with them.
How to Influence Competitor Behavior
The Carrot and the Stick
There are only two ways to incentivize anyone to do anything: positively and negatively. You may be able to offer some positive motivation to get them to change their ways, and you may also get them to change through negative motivation.
Positive Motivations: The Carrots
These strategies only work when both you and your competitor want to get out of the price war.
If you’re in a market where competitors can see each others prices, consider raising your price. Announce it in a trade magazine. Then, if your competitor follows, you are now signaling each other that neither one wants to be in a price war. If your competitor doesn’t follow, lower your prices back to avoid getting killed on price.
For a smaller risk, consider doing this for a market segment. That could be for a geography or an industry. See how the competitor responds. If the competitor follows in that segment, you can be pretty sure the competitor will follow in other segments as well. You have to make sure the competitor knows you did it, so announcing price increases in journals or newspapers is helpful.
If you’re a company that bids projects and your competitor competes heavily on price, consider no-bidding a Request for Proposal (RFP). If your competitor is savvy, they may choose to no-bid the next one.
Negative Motivations: The Sticks
Sometimes competitors are stupid (or strategic) and they compete aggressively with price in a market segment where you dominate and they are trying to penetrate. If your competitor is a start-up, you don’t have much leverage. Maybe you can fight the price war and hope they go out of business.
However, if your competitor is another decent-sized company trying to enter your market, you do have some leverage. Consider launching a product into your competitor’s main market and pricing it very aggressively. Maybe all you have to do is announce you are going to do this. Savvy competitors may get the idea and decide not to compete so heavily in your market.
Winning the B2B Price War
The other way to get out of a price war is to win it! Unfortunately, the only way to “win” a price war is to put your competitor out of business. That can only happen if you can either significantly cut your costs or incur a bigger source of revenue to fund your losses. I don’t know of a single example where “winning” a price war yielded higher profits than playing nice.
Getting out of a price war is challenging. It’s best to not get into one if at all possible. But, you don’t control your competitor’s actions.
Tags: ask a pricing expert, pricing strategy