Recent posts, including “Price Discounting Issues” and “Price Discounting Issues In The Upcoming Holiday Season,” have discussed the recent increase in overall price discounting activity. Now, the discounting seems reading to erupt into a “price war” in consumer electronics.
Excerpts from the November 20, 2013 Wall Street Journal article titled “Price War Looms For Electronics” :
Best Buy Co. shares plunged 11% Tuesday, after the electronics chain warned investors that it was prepared to sharply cut prices—even at the risk of its profit margins—to keep up with competitors that are aggressively discounting to win market share. Chief among those rivals is Wal-Mart Stores Inc., which last week stated bluntly that it will turn to even more price cuts to boost its stagnant sales.
Once a highly profitable sector, consumer electronics is extremely competitive and vulnerable to increasingly frugal consumers. The pressure has worsened this year, because Americans appear to be plowing much of their budgets into new cars and upgrades to their homes, even as overall consumer spending remains tepid.
The paucity of overall growth in spending means retailers are locked in a battle for market share. And in electronics, where the products are the same from store to store, the one real competitive weapon is price.
“Price wars” can be a complex topic, albeit one that will almost certainly become more prominent given various economic and business conditions, including anemic growth in consumer incomes, continuing “deflationary pressures,” and intensifying price competition. It appears as if in many situations, price-cutting and discounting are increasingly used rather indiscriminately.
While generalizations concerning “price wars” and other price-cutting actions are inadvisable – as pricing-related characteristics vary among companies and industries – in many instances, avoiding “price wars” is paramount. Key actions to avoid a “price war” scenario include the ability to foresee and anticipate the dynamics of such a scenario, and then being able to execute appropriate sales, marketing, and pricing actions.
While some companies can be (very) successful at lower price points, such success demands a certain set of skills and disciplines that are often elusive. Being, or becoming, a successful low-cost producer (or retailer) is often difficult.
ProfitabilityIssues.com is published by StratX, LLC (stratxllc.com). StratX, LLC is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and given these conditions, offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.