Marketshare and Pricing – Ouch

Marketshare is a laudable goal for a company.  Just don’t use pricing to achieve it.  Trina Solar’s announcement is one demonstration.  (Click on the headline to read the full article.)

According to this article, prices of solar panels have dropped 21% in the past year due to too much supply and manufacturing capacity.  Each company tried to win every opportunity to fill their capacity.  Unfortunately for the industry, they fought it out with lower prices, in dollars per watt. They tried to win share with price.  As a result, prices plummeted.  So did industry profits.

This article is a great reminder of what happens when we use prices to try to gain marketshare.  Trina Solar recognizes the situation they are in and are now trying to fix it.

What can we learn from this?  First and most important, never try to grow share through price.  Use better products or better marketing or better salespeople, not lower prices.  If you try to gain share with low prices, your competitors will likely respond with lower prices themselves.  You will end up with the same share, only at lower prices.  Your profit suffers, your competitors’ profit suffers.

Second, almost as an aside, notice how Trina is announcing their new strategy to the media.  Actually, they are communicating with the rest of the industry.  They are saying to their competitors, “we’re going to raise prices, please join us.”  This is a common attempt to coordinate industry pricing.  However, the massive overcapacity in the solar industry will likely make it challenging to get cooperation in this situation.

The big takeaway – be careful with which marketing tools you use to grow marketshare.  Use them all, except pricing.  Build great products with extra value.  Use brilliant marketing.  Create a smooth running distribution channel.  Train your salesforce better than your competition.  All of these are great ideas to build share.  But pricing is only a short term marketshare gain.  One that will be countered instantly.  When you build share, do it without lowering prices.

 

Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author

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