As large competitors match low prices, other competitors face difficulties

Symptom: The largest competitors are matching discounts to defend share, making it difficult for other industry competitors to succeed.

Implications for the market:

  • Once hostility creates industry-wide price pressures, the two to four potential suppliers for any customer will be virtually indistinguishable in terms of price. They are, for all practical purposes, "peers," and it is extremely difficult for one to secure higher prices than another.

  • But the customer does recognize differences among these competitors and rewards the better suppliers with more share of their volume. The differences in volume allocated to a primary, secondary, and tertiary supplier are dramatic.

  • In many hostile markets, then, the reward for superior performance is not a higher price but a better position in the customer relationship, making management of the company's volume in the customer relationship the key to success.

Recommended Reading
For a greater overall perspective on this subject, we recommend the following related items:


Perspectives: Conclusions we have reached as a result of our long-term study and observations.

  • "Discovering Hidden Pricing Power"
    A company's effective use of the pricing tool in a price-sensitive market requires more flexibility and market knowledge than is needed in a less hostile environment. The pathways to the pricing opportunities in tough markets lay in three actions a management can take to use price effectively in a market that appears intolerant of price increases.

  • "How Price Kills Profits"
    Many people use their costs to determine their prices. But customers don't care about a company's costs. By thinking more like customers when pricing products, a company might increase its profits.

  • "Who Has Pricing Power?"
    One of the first clear signs that a market has become hostile (or that hostility has ended) is a change in who sets prices. Pricing power shifts as a market moves into and through hostility.

  • "Why Price Cuts Don't Build Share"
    Customers often say they buy on price. But the real buying process is more complicated. Price is not the customer's first consideration. It is his last.