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other electronic brokers are changing the petitive terrain of financial services with their extraordinarily lowpriced brokerage services. The prevailing price for discount trades has fallen from $30 to $ 15 to $ 8 in the past few years. There is a little doubt, in the first example, that the major players in the longdistance phone business are in a price war. Price reductions persecond billing, and free calls are the principal weapons the players bring to the petitive arena. There is little talk from any of the carriers about service, quality, brand equity, and other nonprice factors that might add value to a product or service. Virtually every petitive move is based on price, and every countermeasure is a retaliatory price cut. Price wars are being more mon because managers tend to view a price change as an easy, quick, and reversible action In the second example, the petitive situation is subtly different – and yet still very much a price war. ETrade’s success demonstrates how the emergence of the Inter has fundamentally changed the cost of doing business. Consequently, even businesses such as Charles Schwab, which used to pete primarily on lowprice appeal, are chanting a ―quality‖ mantra. Meanwhile, Merrill Lynch and American Express have recognized that the emergence of the Inter will affect pricing and are changing their price structures to include free online trades for highend customers. These panies appear to be engaged in more focused pricing battles, unlike the ―globalized‖ price war in the longdistance phone market. Most managers will be involved in a price war at some point in their careers. Every price cut is potentially the first salvo, and some discounts routinely lead to retaliatory price cuts that then escalate into a fullblown price war. That’s why it’s a good idea to consider other options before starting a price war or responding to an aggressive price move with a retaliatory one. Often, panies can avoid a debilitating price war altogether by using a set of alternative tactics. Our goal is to describe an arsenal of weapons other than price cuts that managers who are engaged in or contemplating a price war may also want to consider. Take Inventory Generally, price wars start because somebody somewhere thinks prices in a certain market are too high. Or someone is willing to buy market share at the expense of current margins. Price wars are being more mon because managers tend to view a price change as an easy, quick, and reversible action. When business do not trust or know one another very well, the pricing battles can escalate very quickly. And whether they play out in the physical or the virtual world, price wars have a similar set of antecedents. By understanding their causes and characteristics, managers can make sensible decisions about when and how to fight a price war, when to flee oneand even when to start one. The first step, then, is diagnosis. Consider a small modities supplier that suddenly found that its largest petitor had slashed prices to a level well below the small pany’s costs. One option the smaller pany considered was to lower its price in a titfortat move. But that price would have been below the supplier’s marginal cost。 pany issues such as a business’s cost structures, capabilities, and strategic positioning。 and contributor issues, or the other players in the industry whose selfinterest or profiles may affect the oute of a price war. (For a more detailed explanation of such analyses, see the sidebar ―Analyzing the Battleground.‖) Companies that step back and examine those four areas carefully often find that they actually have quite a few different optionsincluding defusing the conflict, fighting it out on several fronts, or retreating. We’ll look at some of those strategies and how panies have deployed them successfully. Stop the War Before It Starts There are several ways to stop a price war before it starts. One is to make sure your petitors understand the rationale behind your pricing policies. In other words, reveal your strategic intentions. Price matching policies, everyday low pricing, and other public statements may municate to petitors that you intend to fight a price war using all possible resources. But frequently these declarations about low prices, or about not engaging in price promotions, aren’t lowprice strategies at all. Such announcements are simply a way to tell petitors that you prefer to pete on dimensions other than price. When your petitors agree that such petition will be more profitable than peting on price, they’ll tend to go along. That is precisely what happened when WinnDixie followed the Big Star supermarket chain in North Carolina and announced that it, too, would meet or beat mutual rival Food Lion’s prices. After two years, the number of equipriced products among 79 monly purchased brand items at the supermarkets had more than doubled. Further, the overall market price level had increased for these products. What happened? The stores stopped peting on price. In fact, the data suggest that Food Lion raised its prices after its petitors announced they would match Food Lion’s prices. Tactic Example Nonprice Responses Reveal your strategic intentions and capabilities Offer to match petitors39。s regular price in response to a petitor39。ngers’ by tracking stock prices by the minute, if they desire. Thus, Coke duels Pepsi, Sony battles Philips and Matsushita, Avis bats Hertz, Procter amp。 they’re convinced that a business that sells at prices dramatically lower than those incumbents charge must go bankrupt. They cite the experience of . airlines, which, after the industry’s deregulation in the 1980s, succeeded in beating off cutprice providers such as People Express. What they fo