Examples of Price Discount Opportunities

Example 1:

In September 1992, P&G cut the list prices of its Pampers and Luvs diapers 7%, amid growing competition from private-label manufacturers.

Explanation: P&G needed to cut its price in order to avoid a Leader's Trap and close the pricing gap it has with private label manufacturers.

Example 2:

In 1996, Kimberly-Clark said it would cut US prices for its tissues, paper towels, and bath tissue. Some Kleenex products would be cut an average of 8.5%. Kleenex Viva and Scott Clean paper towels would be lowered by less than 5%. The company would follow the lead of P&G.

Explanation: Kimberly Clark reduced prices in order to match the price reduction of competitor P&G.

Example 3:

YEAR	SIC	EXAMPLE
2003	7011	Convention hotels are being hurt by sites like hotels.com and Travelocity, which offer room bookings for 50% cheaper at some hotels. In response, some of the hotel companies have begun to offer similarly low-priced hotel rooms on their company web sites.

Explanation: Hotels.com introduced a new price point. In response, the hotel companies introduced a new Price Leader product of their own in order to stem the tide of falling prices and to keep more of the revenues for themselves.

Example 4:

When Maxwell House cut its prices by 30 cents a can in 1995, Folgers followed with a similar cut.

Explanation: Maxwell House followed the price reduction of a competitor.

Example 5:

YEAR	SIC	EXAMPLE
1991	4481	Most cruise lines offer discount coupons to repeat passengers.

Explanation: The cruise lines have lower costs for repeat passengers, due to lower marketing and sales costs, than they do for new passengers. They pass these cost savings on to the repeat customers in order to forestall other competitors from taking these customers from them.

Example 6:

YEAR	SIC	EXAMPLE
2002	5331	Discount retailers, such as Wal-Mart, continually lower prices be reducing costs and squeezing out inefficiencies. These companies sacrifice high profit margins on products in favor of selling more unit volume.

Explanation: Wal-Mart is an example of a strong leading competitor who chooses to reduce prices over the long term to discourage current or potential competitors from competing with them.

Example 7:

YEAR	SIC	EXAMPLE
2002	4841	Dish Network now charges $23 per month for a package of 50 stations, plus $6 more for 18 local stations in the San Francisco Bay Area. That is about $9 less per month than AT&T's similar package for cable service.

Explanation: This is an example of a company offering low prices where there is no customer Last Look.

Example 8:

YEAR	SIC	EXAMPLE
2000	3576	The industry saw an influx of competitors who thought the prices were so good they could come in and compete. In response, Baynetworks offered a 33% discount to its customers. This discount caused some of these new competitors to give up on the market.

Explanation: This is an example of a strong industry leader reducing price to stave off new competition by making the returns for the new competition low.