Welcome to the newest installment of our weekly blog series, Ethical Questions for Marketers. Each week we plan to introduce a new topic and explore it in detail, preparing marketers for the day when they face such a problem at their organization.
Last week’s topic was Price Collusion.
This week’s topic: Price Wars
There are obvious ethics associated with going to war. What about companies that want to go to war with other companies?
We often talk of competition in the business world as if it is life or death. We often treat markets as fixed, so that in order to increase our own market share, someone else has to lose theirs. These are classical ways of viewing competition, and part of the reason that business has long attracted competitive personalities. We talk about strategy. We talk about wins and losses.
Price wars are one common way that this kind of competition reaches a point of no return. Competitors obsess over offering the lowest price in order to take market share from other industry players. But in hyper-competitive markets, this usually just triggers lower prices from competitors.
In price wars, where lowest price wins the most customers, the natural outcome is a race to the bottom. In the long run, it’s not sustainable. Either companies go out of business because they can’t compete, or they strip themselves down trying to cut costs that customers end up worse off.
Before you go to war with your competition, there are some questions you should ask yourself.
- Can we afford to compete if they lower their price too?
- Is the market truly fixed or is there a way to grow without stealing market share?
- Can we make our product better so we don’t need to offer the lowest price?
Stay tuned next week for another installment of our Ethical Questions for Marketers series. If you have an ethical topic you’d like to see addressed, write us.