Price wars are bad, especially with high fixed costs They reduce current profits and erode customers perception of product quality Price wars are not inevitable. For example the french and the germans fight every fifty years but not every year But collusion is illegal Of course predatory pricing is illegal too
• Price wars are bad, especially with high fixed costs. • They reduce current profits and erode customers’ perception of product quality. • Price wars are not inevitable. For example, the French and the Germans fight every fifty years but not every year. • But collusion is illegal. • Of course predatory pricing is illegal too
Differentiation reduces price sensitivity and thus the temptation to start a price war Differentiation of products starts with segmentation of customers Products may be differentiated in quality or variety Even if the base product is homogeneous it may be bundled with a differentiated product
• Differentiation reduces price sensitivity and thus the temptation to start a price war. • Differentiation of products starts with segmentation of customers. • Products may be differentiated in quality or variety. • Even if the base product is homogeneous, it may be bundled with a differentiated “product
If you differentiate by bundling; the design of the bundle should depend on your resources Bundle with your strong resources-unless you risk destroying them in the process o Use advertising to create additional differentiation. still based on your resources
• If you differentiate by bundling; the design of the bundle should depend on your resources. • Bundle with your strong resources – unless you risk destroying them in the process • Use advertising to create additional differentiation, still based on your resources
Price discrimination is a very common practice Some versions are illegal Effective 3rd degree price discrimination can make a lot of money in a lot of industries airlines: classes times grocery coupons quality-tiered products
• Price discrimination is a very common practice • Some versions are illegal • Effective 3rd degree price discrimination can make a lot of money in a lot of industries -airlines: classes, times -grocery coupons -quality-tiered products
