Pricing and Positioning, 2
In this chapter I consider further the issues of pricing and positioning discussed in Chapter 14. Successful companies must strive for stable competitive environments, and I describe the conditions that facilitate this, or make it impossible to achieve. Instability of competition does not necessarily mean that prices are bid down to costs unless there are very many firms in the market. Firms still have some discretion in their pricing behaviour but in unstable competitive environments that behaviour must not only reflect appreciation of the positioning of competitors but an analysis of the variety of their possible responses.
Positioning decisions are partly dictated by the firm's distinctive capability. Some firms are naturally suited to up- or down-market positions. This issue was discussed in Chapter 9. But positioning is also a matter of competitive dynamics. When there are few firms in a particular market, clustering behaviour--in which several firms jostle for the same market position--is a likely outcome. As the number of firms in the market increases, they are likely to spread themselves more evenly across the range of available positions.
Increasingly, a product can only be described by reference to a wide range of its characteristics. Many different features of a car are relevant to potential buyers, and a supermarket must decide which selection of many thousands of goods to hold in stock. For commodities like these, successful firms have to make a well-matched selection of product attributes. For these firms, focus--the consistency of attributes with each other--may be as important as position. Shifts of market position, which require changes in customer perception as well as product specification, need to anticipate competitor responses. They raise special difficulties for multiple-attribute products.