Magazine article Management Today

MT Masterclass: Price Wars

Magazine article Management Today

MT Masterclass: Price Wars

Article excerpt

What are they? Oooh, nasty. The clue is in the name: it means war.

No prisoners are taken, 'victory or death', and so on. Price wars break out when businesses spot a possible weakness in the opposition, or panic that they are simply not getting enough customers to hand over the readies. A dramatic example in recent years was the slashing of the cost of newspapers. Rupert Murdoch challenged the orthodoxy - not for the first time - which held that newspapers were not price-sensitive: ie, readers were loyal and could not be lured by a drop in price. The assumption was wrong. And that war continues to this day, but with 'free' DVDs replacing the price mechanism as the weapon of choice.

Where did they come from? In his famous work The Wealth of Nations (1776), Adam Smith explains that businesses compete to make money. 'It is not,' he wrote, 'from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. …

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