Video: Wednesday, 14 May 2014

Companies that do not have the best cost structure can still come out on top in a price war. New research by Associate Professor Patrick Reinmoeller of Rotterdam School of Management, Erasmus University (RSM) shows that a carefully laid battle plan can result in victory – without having an optimal cost structure. It is possible for any company to win, provided it establishes that conditions are right for a price fight; picks a weaker opponent; confines itself to a clearly delineated area; as well as keep everything hush-hush in the run-up to the attack.

How to win a price war

Entering into a price war is risky, often takes a longer period of time and is labour-intensive. Therefore, a company first needs to determine whether there is a sound case for a price war. What could justify declaring a price war? Massive changes to the market that have a seriously adverse impact on the company – such as a strongly shrinking market share; an existing business model that has become entirely unfit for purpose; or an attack from a competitor.

On top of that, a company can boost its chances of success by keeping its plan of attack under the radar as long as possible. If a company keeps its imminent price war under wraps and makes no prior announcements, its opponent will receive a double whammy because of the element of surprise. Maintenance of radio silence gives the attacking side more time to carefully work out its strategy for the assault.

Also, an attacking company should carefully define its area of attack; the more limited in scope the area targeted by the attacker, the more effectively a price war can be waged. Finally, it is important to pick a fight with a considerably weaker opponent.

Patrick Reinmoeller

Former Associate Professor of Strategic Management

Rotterdam School of Management, Erasmus University

Related articles

RSM Discovery

Want to elevate your business to the next level using the latest research? RSM Discovery is your online research platform. Read the latest insights from the best researchers in the field of business. You can also subscribe to the newsletter to receive a bimonthly highlight with the most popular articles.

Do you want to learn more about this subject?

Check out these RSM education programmes

Your contact for more information:

Danielle Baan

Science Communication and Media Officer

Portrait of Erika Harriford-McLaren

Erika Harriford-McLaren

Corporate Communications & PR Manager

Erasmus University campus in autumn, showcasing its iconic red trees, viewed from across the campus pool.