【正文】 sses suffered by the industry that year exceed the bined profits for the entire industry from its inception. Price wars can create economically devastating and psychologically debilitating situations that take an extraordinary toll on an individual, a pany, and industry profitability. No matter who wins, the batants all seem to end up worse off than before they joined the battle. And yet, price wars are being increasingly mon and unmonly fierce. Consider the following two examples: ? In July 1999, Sprint announced a nighttime longdistance rate of 5 cents per minute. In August 1999, MCI matched Sprint’s offpeak rate. Later that month, AT amp。 it would have suffered debilitating losses. Fortunately, a few phone calls revealed that its adversary was attempting to drive the supplier out of the local market by underpricing its products locally but maintaining high prices elsewhere. The supplier correctly diagnosed the pricing move as predatory and elected to do two things. First, the manager called customers in the petitor’s home market to let them know that the pricecutter was offering special deals in another market. Second, he called local customers and asked them for their support, pointing out that if the smaller supplier was driven off the market, its customers would be facing a monopolist. The shortterm price cuts would turn into longterm price hikes. The supplier identified solutions that eschewed further price cuts and thus averted a price war. Intelligent analysis that leads to accurate diagnosis is more than half the cure. The process emphasizes understanding the opportunities for pricing actions based on current market trends and responding to petitors’ actions based on the players and their resources. Not only is it necessary to understand why a price war is occurring or may occur, it also is critical to recognize where to look for the resources to do battle. Good diagnoses involve analyzing four key areas in the theater of operations. They are customer issues such as price sensitivity and the customer segments that may emerge if prices change。 prices, offer everyday low pricing, or reveal your cost advantage Compete on quality Increase product differentiation by adding features to a product, or build awareness of existing features and their benefits. Emphasize the performance risks in lowpriced options. Coopt contributors Form strategic partnerships by offering cooperative or exclusive deals with suppliers, resellers, or providers of related services Price Responses Use plex price actions Offer bundled prices, twopart pricing, quantity discounts, price promotions, or loyalty programs for products Introduce new products Introduce flanking brands that pete in customer segments that are being challenged by petitors Deploy simple price actions Adjust the product39。 Gamble takes on Unilever, Caterpillar clashes with Komatsu, Amazon spars with eBay, Tweedledum fights Tweedledee. However, this obsession with traditional rivals has blinded panies to the threat from disruptive, lowcost petitors. All over the world, especially in Europe and North America, organizations that have business models and technologies different from those of market leaders are mushrooming. Such panies offer products and services at prices dramatically lower than the prices established businesses charge, often by harnessing the forces of deregulation, globalization, and technological innovation. By the early 1990s, the first price warriors, such as Costco Wholesale, Dell, Southwest Airlines, and WalMart, had gobbled up the lunches of several incumbents. Now, on both sides of the Atlantic, a second wave is rolling in: Germany’s Aldi supermarkets, India’s Aravind Eye Hospitals, Britain’s Direct Line Insurance, the online stock brokerage E*Trade, China’s Huawei in telemunications equipment, Sweden’s IKEA furniture, Ireland’s Ryanair, Israel’s Teva Pharmaceuticals, and the United States’ Vanguard Group in asset management. These and other lowcost batants are changing the nature of petition as executives knew it in the twentieth century. What should leaders do? I’m not the first academic (nor, I daresay, will I be the last) to pose that question. Several strategy experts, led by Harvard Business School’s Michael Porter in his work on petitive strategy and Clayton Christensen in his research on disruptive innovations, and Tuck School’s Richard D’Aveni in his writings on hyperpetition, have described the strategies panies can use to fight lowcost rivals. But that body of work doesn’t make the phenomenon less interesting—or render the threat any less formidable. For, despite the buckets of ink that academics have spilled on the topic, most panies behave as though lowcost petitors are no different from traditional rivals or as though they don’t matter. Over the past five years, I’ve studied around 50 incumbents and 25 lowcost businesses. My research shows that ignoring cutprice rivals is a mistake because it eventually forces panies to vacate entire market segments. When market leaders do respond, they often set off price wars, hurting themselves more than the challengers. Companies that wake up to that fact usually change course in one of two ways. Some bee more defensive and try to differentiate their products—a strategy that works only if they can meet a stringent set of conditions, which I describe later. Others take the offensive by launching lowcost businesses of their own. This socalled dual strategy succeeds only if panies can generate synergies between the existing businesses and the new ventures. If they cannot, panies are better off trying to transform themselves into solution providers or, difficult though it is, into lowcost players. Before I analyze the various strategy options, however, I must dis