When competitors use price to attack

By: trademagazin Date: 2007. 04. 25. 08:00

Manufacturers of brands are ever more frequently faced with competition which uses low prices. Most of them are forced to review their price strategy as a result of a challenge by discount stores and private labels. Nielsen has segmented branded products according to their sensitivity to price. Nielsen has set up five groups for branded products according to sensitivity to price and possible strategy: 1. Price followers. Low market share, but high sensitivity to price. Low brand value. 2. Price Competitors. Big turnover, high sensitivity to price. Consumers tend to focus on price. 3. Mainstream brands. Sold in average quantity, average sensitivity to price. 4. Market leaders. Sold in large quantities, low sensitivity to price. Number ones in the market. 5. Market gap brands. Sold in small quantities, low sensitivity to price. For example: bio and premium products. When a cheap competitor appears in a market, this usually means a problem for price followers and price competitors. Their sales might fall and their sensitivity to price may increase even further. They need to respond quickly. Two strategies are possible: one is to reduce manufacturing costs drastically, while the other is to invest in marketing to boost brand value in the long term, in order to reposition the brand. Price competitors should also consider investing in marketing to reposition their brand into the mainstream category. However, there is no guarantee for success. Mainstream brands are not much effected by cheap competition, while market leaders are usually not effected at all. Cheap competitors will not cause a significant increase in sensitivity to price for them. Market leaders usually do not need to adjust their prices. It is practical for them to continue investing in brand building. Market gap brands are not effected by cheap competition either, unless it happens to enter their little gap. This however, is unlikely to happen, because cheap brands need high turnover.

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