SYMPTOMS AND IMPLICATIONS: PRICING

PRICING POLICY SYMPTOMS

	The industry is seeing its first price wars
	Foreign competitors are expanding with low prices
	Customers are more price sensitive
	Most competitors are offering low prices after a period where leaders held prices high
	As large competitors match low prices, other competitors face difficulties
	Large competitors are maintaining price levels as smaller competitors discount
	Some competitors seek price increases more aggressively than others

MARGIN LEVEL SYMPTOMS

	The industry is consolidating through mergers and acquisitions
	Demand in the industry is falling
	Revenue growth has been high, but has slowed
	Competition is expanding with the appearance of discounters
	Small discounting competitors have gained a market toehold
	Demand continues to grow but margins are low and new entrants are taking share
	New competition is entering a settled market
	Margins are falling but competition continues to expand aggressively
	Both new entrants as well as existing competitors have added capacity
	Industry profits are low but downsized capacity remains
	Demand has turned up bringing a tight market and more capacity
	After high growth, demand has leveled and capacity has increased
	Substitute products have grown in importance
	Profits are under pressure despite demand growth
	Technology improvements bring falling prices
	The industry cannot pass on cost increases
	Price wars are spreading in the industry
	Demand rose quickly for some time in the past
	Observers expect industry capacity reduction
	The company believes the industry will be more diplomatic about adding capacity
	Profits are high because the company is in a niche segment
	Prices on niche products continue to rise while other prices fall
	Prices are rising as the industry runs out of capacity
	The industry has been able to preserve margins by increasing prices

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Over the years, we have written a number of Perspectives that cover a broad range of subjects in deteriorating and hostile marketplaces. We recommend that you review some or all of these articles before undertaking extensive analyses or delving deeper into the other Perspectives. These broad discussion Perspectives add important context to the Analyses, Symptoms and Implications and to the other Perspectives. These general articles include:

	“Use Subtle Strategy in Tough Markets“ A hostile market operates differently than a market with “normal” competitive conditions. But as difficult as a tough market can be, it can also present an astute management team with an unusual opportunity.
	“Rare Mettle: Gold and Silver Strategies to Succeed in Hostile Markets“ Managements of winning companies have common themes for success in hostile markets. They each follow five basic themes. While virtually all successful companies are aware of these themes, their implementation differs according to their market position at the onset of hostility.
	“Staying Alive in a Hostile Marketplace“ A few companies survive and even prosper during periods of hostility. How do these companies avoid being the victims of tough market conditions?
	“Success Under Fire: Policies to Prosper in Hostile Times“ A hostile market evolves through six predictable phases. Most companies fail, withdraw or become acquisitions before this evolution is complete. They fail because their management policies were not effective. The few who survive and prosper do so by making decisions that follow two rules: attract customers and discourage competition. Losers lose by not following the second rule.
	“The Wisdom of Salomon“In the late ’80s, the investment banking firm of Salomon Inc. decided to leave the municipal bond market – a market the firm had lead. This withdrawal showed just how limited management’s options are when a market goes into overcapacity and how the best choice under such conditions may be the painful decision to leave the industry.