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Reasons for Price Cuts
• Excess Plant Capacity• To dominate the market
through lower costs• To increase market
share
A Price Cutting Strategy may lead to
1.Low Quality Trap
2. Fragile Markey Share Trap(Low price doesn’t buy
market loyalty.Customers may shift to other brands)
3. Price War Trap
Respond to Low Cost Rival by
1. Maintaining Price and adding Value2. Reducing Price3. Increasing Price and Improving
Quality4. Launching a low price fighter line
Ways of Increasing Price
Delayed Quotation Price- Setting Price at
later stages even after delivery
Escalator Clauses- Customers pay
current price as well as part of inflation that may take place before delivery
Unbundling- Companies price separately one or more
elements that were part of former offer
Reduction of Discounts-Companies instructs its sales not to offer its normal cash and quantity discounts
RECAP• Reasons of Price Cuts• Affects of Price Cuts1. Low Quality Trap2. Fragile market share Trap3. Price War Trap
• Ways to Respond to low cost Rival• Ways of Increasing Prices1. Delayed quotation pricing2. Escalator Clauses3. Unbundling4. Reduction of discounts
Created by ANKEITA MALL, S.G.S.I.T.S. , during an internship by Prof. Sameer Mathur, IIM Lucknow. www.IIMInternship.com