Asda, a supermarket giant, initiated a price war by reducing it’s gas prices to their lowest. It wasn’t until later that other competitors of Asda, such as Sainsbury, recognized this, and quickly announced it’s own price cuts towards the public: building stronger tension between these two big super markets.

A pricing war can assist competitiveness in the short term but it is considered detrimental in long-term competitiveness. Issues arising from the war can include destruction of customer loyalty – new customers you gain can cannot be retained and you lose existing customers; whilst war may force some efficiencies and cost savings in the manufacturing/selling process, longer term profitability is weakened as the ability to raise prices after the war will likely be curtailed; and most of all, nobody benefits.

In case of a price-war, response is key.  As such companies have to “sweeten” the offering – price maybe a component but give focus to additional free extras, greater trade in values that appear to be a great benefit but do not cost as much. For example, in the case of a car – minimum trade in amount, pay registration; give 6 months free petrol, upgraded sound system, etc.  Looks good but it is difficult for buyers to actually price as people look at retail value [price in shops that includes margin] and everybody has different motivations in respect to benefits offered.

Citations

Massey, Ray. “Asda Sparks Price War by Slashing Pump Prices to Lowest Level since February.” Mail Online. 4 Nov. 2011. Web. 25 Nov. 2011. <http://www.dailymail.co.uk/news/article-2057671/Asda-sparks-price-war-slashing-pump-prices-lowest-level-February.html>.