Large competitors are maintaining price levels as smaller competitors discount

Symptom: Large competitors may be allowing smaller competitors to enter relationships with the large competitors' customers on the basis of price.

Implications for the market:

• FOR LARGE COMPANIES:

  • If share is moving away from large competitors to small competitors on the basis of price, customers are saying that the price premium that large competitors are charging is not fully justified by superior benefits.

  • As long as this level of price premium remains, large competitors are likely to lose share. The pricing gap must close somewhat.

  • Assuming the discounter is charging a unit price above its cash costs, it is positioned to continue gaining share and thereby growing stronger. Then, it can use this growing strength to improve its product and service packages to the point at which it becomes a significant market threat to the large competitors.

• FOR SMALL COMPANIES:

  • While attractive in the short term, this window of share gain opportunity is going to close. As large competitors lose share, they will begin to defend themselves by reducing the price differential, which will squeeze smaller competitors.

  • A discounter would do well to upgrade its customer mix, adding in more customers who buy on the basis of service as well as, or in addition to, price. Once the price difference between large companies and discounters disappears, those customers are more likely to continue buying from a small company that offers needed service benefits.