| Here are some thoughts on the study of the theory | | | | top of their game then they would have been able |
| of price wars as they relate to the industries like the | | | | to offer those savings prior and not been caught off |
| Airlines and others. Comments on an article in Harvard | | | | guard by Sprints move. Why did they already not |
| Business Review in March-April edition 2000. The | | | | offer these lower prices since they could have? |
| article was called 'How to Win a PRICE WAR'. Written | | | | What these authors and Professors did not mention |
| by Akshay R. Rao, Mark E. Bergen and Scott Davis. | | | | is that the best way to win a price war is simple. |
| They start out the article, that in the game of | | | | Start the price war, but not until you are 100% at |
| business, many tactics are used to ward off | | | | the top of your game. If you are at the top you can |
| competitors. Increasingly PRICE is the weapon of | | | | win a price war. But be active, not re-active. Be the |
| choice. It talks about how the quest for market | | | | price breaker, the ball buster, the Iron fist. Move to |
| share and market dominance by continually lowering | | | | make the first blow, so deep, so hard, without falter |
| prices by each side of a price war can drive down | | | | and be ready to move, and adapt with the battle. |
| Industry Profits. Oh Really? But who cares what the | | | | Take what is yours because you are at the top of |
| Industry does anyway. Is it not the consumer that | | | | the game. Be ready to make unexpected moves at |
| pays for your dinner and youremployee's kids college | | | | a split second and fire blow after blow. Be ready to |
| tuition? It sites the 1992 Airline wars Between | | | | break Industry norms, forget the rules, the |
| American, Northwest and others as an example. The | | | | perception of the Industry, disregard its experts, its |
| result was record air travel and record losses. Surely | | | | leadership, its foundation. If you want to run at |
| this example cannot be used in modern context, | | | | redline in a race with cars that go all the same speed |
| because at the time each airline was flying both | | | | and use only part of the track then go ahead. But |
| McDonald Douglas, Boeing and Lockheed Aircraft. | | | | this team and teams like it in various Industries all |
| With Pratt Whitney and/or GE Engines. Similar in fuel | | | | over will beat you. |
| consumptions, similar ticket distribution system, similar | | | | Because the first thing they teach us at racecar |
| airport landing fees and similar customer base. | | | | driving school is use the whole track. And if you are |
| Now to really win that war and decrease losses you | | | | not in the unlimited class then you are controlled by |
| would have to become more efficient in reservations, | | | | weight, speed, size and timing. If you let others set |
| cut staff, more efficient in facilities, feeder airlines, | | | | your limits then the authors have a point, in all other |
| scheduling, fuel consumption and in other services | | | | cases they need to stop writing articles. Publish or |
| related to airline travel you were involved with. They | | | | Perish? Whatever guys, I guess if you cannot, you |
| did not, they simply engaged in a price war, to shake | | | | can always teach. |
| out the weak. Now for the consumer the lower | | | | I love price wars and we have never entered a |
| prices were great, for the stockholder they were | | | | market area, digitally or anologely, that we have not |
| not. But they could have been. The authors site this | | | | won when implementing a price war. |
| as damaging the industry. An Industry that takes | | | | Rule number one when competing for price. START |
| wartime aviation advances and a few years after to | | | | THE WAR. |
| allow for the new technology to reach the private | | | | Number two. BE READY TO ADAPT. |
| sector with new and efficient aerodynamics and | | | | Number three. BE THE BEST AND MOST EFFICIENT |
| electronic positioning and fuel allocation devices. | | | | BEFORE YOU START. |
| If the MBA number crunchers would look at the real | | | | Number four. DO NOT FOLLOW ANY INDUSTRY |
| problems and design a superior system in the airlines | | | | STANDARDS OR SET ANY LIMITS. |
| at that time rather than always doing the obvious | | | | Number five. DO NOT HAVE A TIME LIMIT ON THE |
| and previous chess moves then they might get an | | | | WAR. WAR IS HELL ASSUME IT LAST FOREVER. |
| upper hand. Because necessity is the mother of | | | | Number six. HAVE SUPPLIERS ON YOUR TEAM. |
| invention. Price can drive the market and the winner | | | | Number seven. TELL THE WHOLE WORLD ABOUT |
| in the most free of Friedman models would be that | | | | YOUR PRICE CUT AND WHY. |
| company which can innovate and adapt and US | | | | Number eight. RAISE STANDARDS OF QUALITY |
| MARINE their way to the next level, like is such in | | | | AND EASE OF USE FOR CUSTOMERS |
| the new digital economy. But airplanes only go so | | | | SIMULTANEOUSLY. |
| fast, there is friction, drag, lift, weight and thrust and | | | | Number nine. BUNDLE SERVICES RIGHT BEFORE |
| that is all you can get right? Wrong. Remember when | | | | YOU START THE WAR. |
| Chuck Yeager broke the Speed of Sound in the Bell | | | | Number ten. RUN THE PRICE WAR IN ALL AREAS |
| X-1? It was impossible. And the Moon? Never! You | | | | AT ONCE. |
| see it is those who do not or will not push the | | | | Number eleven. LOWER PRICES BY ONLY 60% OF |
| envelope and not dare to risk that will lose in the | | | | WHAT YOU CAN, SAVING FORTY FOR LATER, |
| price war. The Industry? Who cares about the | | | | WHEN THE REAL WAR BEGINS. |
| Industry. Re-create it. An Industry is a boundary, so | | | | Number twelve. HAVE CAPACITY RADY TO TAKE |
| is the atmosphere, the copper cable lines, the ones | | | | ON NEW CUSTOMER BASES AS COMPETITORS |
| and zeros that make up computer language. | | | | LEAVE THE MARKET. |
| Industries set standards. Break them. Industry set | | | | Number thirteen. CREATE A MASSIVE DIVERSION |
| limits, ignore them, Industries make experts. Challenge | | | | RIGHT BEFORE YOU START SO THEY WILL NOT |
| them. Industries print magazines and give advice, do | | | | SEE IT COMING. |
| not read it. Driving down prices in any Industry | | | | Number fourteen. GET THE INDUSTRY TO AGREE |
| makes that Industry and forces the weak to either | | | | ON PRICES AND CUSTOMER SERVICE ISSUES |
| adapt or exit the market place. | | | | BEFORE YOU ATTACK. |
| Their article is like saying that an Olympic athlete who | | | | Number fifteen. MAKE THE INDUSTRY DEFEND |
| works out too hard and sacrifices too much should | | | | THEIR POSITIONS AND TRACK RECORDS. |
| slow down to 5-minute miles in the Marathon and let | | | | Number sixteen. HAVE INSIDER INFORMATION ON |
| the other runners catch up. Hog wash. Or let the | | | | YOUR COMPETITION AND KNOW THEIR NEXT |
| other basketball team score more points and put in | | | | MOVE. |
| your weakest players so that it makes the game | | | | Number seventeen. ADVISE YOUR COMPETITORS |
| look close? Why, Capitalistic markets dictate | | | | THAT THEY ARE BREAKING THE INDUSTRY NORM, |
| competition and competition dictates compelling | | | | EVERYTIME THEY LOWER SERVIC TO COMPETE |
| reason to excel. I say take that challenge, deliver | | | | ON PRICE, AND ALERT THE INDUSTRY NEWS. |
| great quality, lower prices and raised standards. Oh | | | | Number eighteen. GO STEATH-SILENT FOR THRE |
| Sure the Unions want everyone to get paid for as | | | | MONTHS PRIOR TO WAR. |
| little work as possible, too, they do not want a wage | | | | Number nineteen. MOVE SWIFTLY, AND ATTACK IN |
| war either. But a wage war might improve efficiency. | | | | YOUR COMPETITORS MOST PEAK SEASON, RIGHT |
| Less work for may pay. Who does that help? Is that | | | | AFTER THEIR SLOWEST MONTH. |
| not a little short sided? All that does is reward | | | | Number twenty. HAVE BRAND NAME |
| inefficiency. We are to believe by this article that a | | | | RECOGINITION TO CARRY YOU THROUGH. |
| price war hurts an Industry? Who says the Industry | | | | Number twenty one through twenty five and the |
| should be allowed to exist? The consumer or the | | | | most important of all. I CANNOT TELL YOU THESE. |
| Industry? | | | | Many business books will tell you, you cannot have |
| Is Harvard Business School so hard up for articles | | | | price or quality. BS-Have both, who says it has to be |
| that it will allow this type of content and flawed | | | | one or the other? The Experts, the professors, the |
| thinking into their reviews? Why should you reward | | | | Industry Leadership? Who cares what they think. |
| an Industry and recommend against price wars? | | | | Business Industry Leadership will say at the start of |
| Should we then have price collusion and price fixing? | | | | any price war, |
| That is the other option. A price war weakens | | | | YOU GET WHAT YOU PAY FOR! NOBODY CAN |
| Industries? Or does it keep them in check, and keep | | | | AFFORD TO DO IT THAT CHEAP. |
| them from getting too fat, dumb and happy? Strong | | | | Yes but are you paying for what you are getting? |
| survive, free market economies are theoretically | | | | That phrase is a simple cop out. And can no one |
| based on the evolution of business. Just because an | | | | there really not do it? Or are they admitting that |
| Industry forms Associations and lobbyists and sets | | | | they can not do it and are projecting their inferiority |
| standards of price and quality, does not mean it | | | | onto your company, like personifying an inanimate |
| should be allowed to garnish higher prices from | | | | object. Nobody can keep up that Marathon pace. |
| consumers and not have market pressures of | | | | Good keep thinking that. If you have inside |
| competition, especially the major market pressure of | | | | information that this is occurring you are winning and |
| price, which will always be the great equalizer in the | | | | should lower it again, because they will surely never |
| current system all businesses in the US operate | | | | catch up for lost ground or lost market share and |
| under. | | | | you have the synergy and the power of presence |
| One quote in the article is hysterical: | | | | on your side. This is how markets are won. A denial, |
| PRICE WARS CAN CREATE ECONOMICALLY | | | | and a sure sign that you have competition, who not |
| DEVASTATING AND PSYCOLOGICALLY | | | | only does not understand your Industry, but also |
| DEBILITATING SITUATIONS THAT TAKE AN | | | | cannot allow themselves to adapt. Pray for this |
| EXTRAORDINARY TOLL ON AN INDIVIDUAL, A | | | | scenario to take place, it is typical and means you are |
| COMPANY, AND INDUSTRY PROFITABILITY. | | | | doing it right. |
| Lots of big words guys, but this reader does not buy | | | | Take a company for instance, which has Great |
| it. First off nobody said life was suppose to be stress | | | | prices, great service, great customer base, great |
| free in personal life, business or otherwise. When you | | | | image, on the leading edge of all aspects and more |
| are born, during birth your body is under more stress | | | | efficient than the nearest competitors. A company |
| moving through the birth canal than at any other | | | | like Dell. So when they wage a price war on the |
| time in your life. So forget about this easy ride thing. | | | | competitors in our markets, who wins? The |
| The strong survive. No athlete can expect to stay on | | | | consumer number one. And Dell because the |
| top without hours of training, commitment, sacrifice | | | | competition cannot participate in our price war. |
| and training. Nor should they be allowed to. Because | | | | Overhead too high, and they refuse to break |
| world records are not won without competition and | | | | Industry ranks. All the while the consumers |
| pushing of the envelope. Likewise no business should | | | | overwhelmingly choose Dell, not Gateway or |
| be allowed to operate at anything less than optimum | | | | HP-Compaq. Why. For all the same reasons above. |
| efficiency. If they do they are lazy and they should | | | | There are Lots of great examples of case studies in |
| be challenged, this helps the dynamics associated with | | | | the article, all out of context and few touch on any |
| a free economy. | | | | depth to prove any points, except that the authors |
| The airline example does not take into consideration | | | | are well read. I would challenge any of these authors |
| some of the strides made by some of the then | | | | to put money on any company any company in the |
| competing airlines. Continental Airlines instituted a fuel | | | | PC business industry. PRICE WAR is the weapon of |
| savings program to Pilots who were given a | | | | choice, it is the same as picking up the pace in a |
| percentage of Lbs saved in fuel as a bonus. By | | | | Marathon. If you are the better runner you leave |
| cutting off the direct paths from station to station | | | | everyone else in the dust, if you are not the best |
| (VOR) they were able to save fuel and time in flight, | | | | runner, it is your fault for not preparing or training |
| thus able to lower cruising speeds, less drag on the | | | | tough enough in the life you lived for the decades |
| hyperbolic curve and save millions each day in fuel. | | | | leading up to that event. Be the best and start the |
| This came out of the price wars. Many other similar | | | | war, raise the bar, raise the standards, pick up the |
| efficiencies also came out of those price wars. | | | | pace and lower the prices, then be prepared to finish |
| The authors then site the long distance charges war | | | | a marathon. |
| started by Sprint on weekends at 5 cents per minute | | | | You know what, the crowd will love you even more |
| and then matched by MCI and AT&T. Good for | | | | than the consumers. Just Ask: AVIS, Ford, Microsoft, |
| consumers and now we may see in a few years no | | | | Block Buster, E-trade, Amazon.com, JB HUNT, |
| long distance charges in Continental US. This hurt | | | | SWIFT, GE, AT&T, Taco Bell, South West |
| Industry profits. Yes, but so what. Consumers got a | | | | Airlines, anyway you get the point. |
| better deal, and if the phones companies were at the | | | | |