Question

How should marketers respond to price changes?

Answer 1

A business considering a price change has to think about their rivals 'reactions as well as their customers'. Competitors are more likely to respond when there is a limited number of companies involved, when the product is standardized and when the consumers are well educated. If the company faces one big competitor and the competitor tends to react to price changes in a set way, that reaction can easily be anticipated. But if the competitor views each price change as a fresh challenge, and responds to its self-interest, then the business will have to find out what constitutes the self-interest of the competitor at the moment.

It must consider the stage of its own product in the life cycle, the importance of the product in the company's product mix, the competitor's intentions and resources and the potential consumer reactions to price changes.
However at the time of a price change, the organization can not always allow an exhaustive review of its alternatives. The competitor may have spent a lot of time preparing this decision, but within hours or days, the company may have to react. The only way to reduce the reaction time is to schedule both future price increases for the competitor and future reactions

If the organization believes that appropriate action can and should be taken, it may have any of four answers. Firstly, it could lower the price to suit the price of the rival. It that conclude that the market is price-sensitive, and that the lower-priced competitor will lose too much market share. Or it may be troubling that it would be too hard to recapture lost market share later. Cutting the price would in the short term reduce the company's earnings. In order to maintain profit margins, some businesses may also reduce their product quality, facilities and marketing campaigns, but this would eventually harm long-term market share. The company will aim to preserve its quality as prices are lowered.