Smarter Pricing: How to capture more value in your market

You cannot hold all the business

One conclusion is clear – in the face of new and low-cost competitors, a company can utilize some of these strategies, but will not be able to retain all the business. Invariably, some price-sensitive customers will defect to the newcomer.

The consulting firm, McKinsey, investigated incumbent strategies in deregulated industries, publishing their findings in an article, ‘The race to the bottom’, by Florissen, Mauer, Schmidt and Vahlkamp. They report that managers in newly deregulated industries often over-react. Typically they make four mistakes:

• focusing on the lowest priced competitor rather than the one that is best known in the market and most likely to lure customers away;

• over-estimating switching rates in ...