A situation in which an established industry competitor maintains a price umbrella and cedes share to a discounting competitor in the mistaken belief that customers will stay loyal to the established competitor by paying a premium for his product. Over time, the company in the Leader's Trap not only loses share, but also sees prices fall to a level near the price established by the discounting competitor.
(See also Price Umbrella)
In 1993, Tampax lost market share to Playtex, O.B., Kotex and private labels, falling another 3 percent for the year. Sales declined 12 percent. Some believe the company misjudged brand loyalty by raising prices several times in the last two years.
Until 18 months ago, the Fort Howard Corporation preferred to charge a price premium and was prepared to give up share in order to protect its high margins. In both the Distributor and the National Accounts business, this pricing policy caused Fort Howard to lose share.
In 1988, defying common industry practice, Esprit refused to pay stores for markdowns on slow-moving goods.
Shipments of flagship Marlboro brand fell 5.6 percent in 1992. Industry sales overall dropped .4 percent. Marlboro prices were raised seven times in two years, even as smokers switched to lower price points.
Quaker State lost market share to Pennzoil and Castrol in the mid-80s, who lured distributors and customers away using discounts and rebates. Quaker State stubbornly stuck to higher prices.
Throughout 2003 and part of 2004, HP and Dell were locked in a pricing firefight over PC market share. HP continually lowered price to match or undercut Dell. The two companies vied for market share leadership, with both winning some quarterly battles. Profits for HP were low, though. In late 2004, HP decided to focus on profits before market share and allow its prices to exceed Dell's. Dell gained market share as a result. Wall Street applauded HP's decision.
From 2000 to 2004, Boeing lost several of its long-time customers to rival Airbus. Airbus offered low prices. Boeing refused to "chase the price down." Boeing insisted on a premium price because it believed its planes were more cost effective
Take-Two, a distant follower in the electronic sports game market, priced its ESPN NFL 2K5 game at $20, less than half Electronic Arts' Madden NFL 2005's $49.95 price. After seeing Take-Two win 2 million copies in sales from July through October, while it sold 2.4 million copies of its game, EA reduced its price to $29.95 for the holiday season.
Walgreen's was losing prescriptions for long-term use drugs to cheaper, mail-order pharmacies, especially at the larger companies, who used pharmacy benefits managers. In response, Walgreen's told several of these large companies that it would refuse to fill their employees' short-term prescriptions.