- Opinion & Analysis
- Read Time: 13 min
The history of the successful Swedish furniture retailer IKEA illustrates the role that adaptation and experimentation play in the development of an innovative strategy.
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Every company lives in fear of competitors that offer seemingly similar products for much lower prices. Dealing with such discounters is no simple matter, as Hewlett-Packard, May Department Stores, Salomon Brothers and others have discovered. Nevertheless, various strategies — ignoring or blocking the competitor, strengthening your value proposition or even strategic retreat — can help slow or even stop the low-end competitor without destroying the industry’s profit margins.
Companies should spend less time trying to fool customers with hidden charges and devote more effort to competing on differences that really matter, say the authors. Imaginative managers may want to consider how a move toward honest pricing in their industry — such as unit pricing at supermarkets and the U.S. government”s Energy Star program — could help sell more and better products to a loyal customer base.
The ability to set the right price at the right time, any time — the very definition of a pricing capability — is becoming increasingly important. Based on their work with dozens of companies, the authors explain how investments in human capital, systems capital and social capital come together to form a pricing capability that competitors will have a hard time imitating.
Trade promotions permit manufacturers to influence retail price, retail sales, and total channel profit by rewarding resellers for lower prices and subsidizing their selling effort.
Gray market goods — brand name products sold through unauthorized channels — are an increasing threat to multinational companies. The authors present a framework to help select the right approach to coordinating price-setting decisions on the basis of a subsidiary’s local resources and the complexity of a product’s market. Examples of price coordination methods are provided.
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