Firms need to take care when responding to competitor’s action with a pricing change, as this could trigger a potential price war. Therefore, in this activity you need to identify what would be the most appropriate pricing reaction for the following generic situations actions.
- To communicate the high quality of your product against a new competitor
- The market that the firm operates in is deregulated (allowing more competitors to enter)
- A new substitute product/industry emerges
- A major increase in production costs occurs
- The firm is looking to benefit from economies of scale
- When you know that key competitors will always match your price changes
- To increase market share significantly
- For one of the firm’s brands/products that has increased its brand equity
- When the firm’s product is experiencing high seasonal demand
- When a major competitor leaves the market
1. For each of the above situations, generally outline how the firm should respond. Choose from:
- Reduce prices
- No change to prices
- Increase prices
2. Given your response in Q1, what general ‘rules’ should a firm consider when determining their pricing levels?
3. How often do you think that firms should reconsider their pricing levels?