Pricing is … the Nuclear Bomb of Business

Of all of the tools business people have, pricing is the most powerful and the most dangerous. It’s like having a nuclear bomb, especially in 3 areas.

First, pricing can be very destructive. When you lower your prices, that certainly hurts your competitors. When they retaliate, and they almost certainly will, that will hurt you as well. In the end, the most likely result is lower industry profits, including yours.

Second, you can’t un-explode a nuclear bomb.  Similarly, it is extremely difficult to raise prices again once a price war begins. Companies rarely want to unilaterally raise prices and risk giving up market share to their competitors. Coordinating price increases in an industry is challenging; and it’s illegal if done through direct communication.

Third, pricing can be considered a a deterrent. Your competitors are much less likely to lower prices if they believe you are going to follow suit and not let them easily take your market share. The real trick to this is to monitor and control your costs. You never want to be in the position where a competitor can price below your cost of doing business.

When it comes to doing battle with your competitors over market share, pricing should be the last weapon you pull out, if ever. Just like all nuclear equipped countries don’t use them aggressively, you too should avoid using your most powerful weapon aggressively. Feel free to chase market share with branding, marketing, sales, features, advertising … anything but pricing.

Mark Stiving, Ph.D.

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