More importantly though “If an aggressive price war does erupt, we expect independents will be the biggest losers given the relatively thin margin which is shared between the retailers," Mr Simotas said.

“Woolworths' food and liquor margins, which are the highest in the world, are expected to fall from 7.9 per cent to 5.5-5.7 per cent this year, reversing gains of the past 10 years, as the retailer invests more than $600 million into reducing grocery prices”

42069zip code

Consumers initially seem to be the victors in this price war, as the price of a basket of groceries goes down, but eventually this always changes. Shrinking package size, pricey multi-packs and dodgy offers are all tricks of the trade used by the combatants in a supermarket price war to sustain their lengthy campaign.

Equally as worrying is the very real possibility of legacy technology, system outages and interrupted workflow, all resulting from unsustainable, low pricing.  In the information brokerage industry, Lawyers and Conveyancers rely heavily on us, the information brokers, to uphold our end of the bargain. Quite simply, the quality of the work Lawyers and Conveyancers offer their clients, depends largely on the quality of the service we provide those Lawyers and Conveyancers. If a provider sets out to aggressively undercut the market, resulting in paper-thin margins, how do they invest in their technology, their service and their staff? Or maybe they just don’t, and hope their clients won’t notice…

69420 zip codereddit

‘The pricing is far too complicated and isn’t put forward honestly,' one respondent said of the airline. 'There’s so many variations and hidden charges on flights and options, it’s hardly worth the hassle,' said another. Other customers criticized that the airline is 'too strict and inflexible on luggage allowances,' and another notes that 'what appear to be amazing offers turn out to be a lot worse off on closer inspection.'

On the surface, consumers love the idea of undercutting or a price war, take for example the much publicized UK-Supermarket price wars.

69420 zip codemap

Ryanair has featured notoriously in the news over the years for schemes to boost company profits, and not in the usual way of providing a reputable service in exchange for passenger’s hard-earned cash but for plans to charge for the use of onboard toilets, charge for printing boarding passes, charging for overweight passengers and even plans to sell advertising space on it’s airplane’s wingtips.

Wouldn’t it be easier for Ryanair to just play nicely with other airlines, charge for their flights in line with the industry and provide a reputable service in return, instead of spending time inventing creative ways to claw back profits? Even if the powers that be at Ryanair secretly wanted to do this – how would they get themselves back onto this “plane”? How much would it ultimately cost to change the perception of Ryanair as a low-cost, low-service airline?

Take Ryanair, the Irish budget airline, which is known for it’s aggressive pricing and cost cutting. It is also known for below-par service and in 2014, according to The Daily Mail “was named the second worst-ranked brand in the world, based on ease of customer use of a company's products, services, interactions and communications. Primary customer complaints against the airline were Ryanair's badly designed website and poor customer service that 'leaves the onus on the customer.'

Undercutting is a pricing strategy where a product or service is set at a very low price, intending to drive competitors out of the market, or to create barriers to entry for potential new competitors, but is it really a viable and sustainable strategy and who really gets hurt because of it?

Among the much used idioms “you get what you pay for” and “price is what you pay, value is what you get” there is a quote by Benjamin Franklin that continues to ring true to this day:

69420 zip codememe

The first casualties of a price war, should it ensue, will always be the smaller players, those with the least market share and the shallowest pockets. Last year, in the UK, 146 food producers went into insolvency as a direct result of their supermarket price war. According to Duncan Swift, head of the food advisory group at Moore Stephens “To try and make the maths work, the big supermarkets are putting food producers under so much pressure that we have seen a sharp increase in the number of producers failing.”

Completely agree. This type of behaviour very often ends in a monopolized market - which in the end stifles both innovation and customer satisfaction. Great article Brendan Smart

"The deep earnings reset raises the prospect of a price war, given that Woolworths has less to lose," Deutsche Bank analyst Michael Simotas said.

I'm the guy accounting firms will call to solve their practice technology challenges. I'm independent, don't accept vendor commissions, and get firms back on track.

69420meaning

"There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man's lawful prey." John Ruskin

Yucuyachi mexicozip code

By and large, in any industry today the customer is always right, within reason.  In closing, I feel the need to point out that when competitors aggressively undercut the market, you the customer, become the biggest casualty in that you lose your right to be right. If you are lured by a ridiculously low price for say, a title search and don’t get the service you expect or have become used to, and dare to complain, it’s very likely that in the future you could be met with one of two responses: The first one would be a sincere” I’m sorry, we are understaffed  and doing the best we can” and as things spiral further, you may even get a less than savory “You are getting our lowest possible price, what more do you want? Service is what you want, but who’s paying for it? You certainly aren’t.

“The bitterness of poor quality remains long after the sweetness of low price is forgotten," never a truer word has been spoken in relation to product quality. It's also always important to remember that the product is only the tip of the iceberg, so to speak. The service and support provided after the fact are the key factors for a sustainable buisness relationship.

“Undercutting”, “Price war”, “predatory pricing” – all are ugly words, made more palatable under the guise of “strategies” History tells us however, that all of these so called “strategies’ do not end well, not for competitors, not for providers and least of all for customers.

Undercutting doesn’t need to result in an all-out price war for casualties to occur. Someone starts losing as soon as the prices start dropping. Of course, there is nothing wrong, from a customer’s point of view, with a healthy discount – as long as it’s healthy. Protracted discounts, however, especially when aggressive are when the cracks start to show. Something has to “give” to support the aggressive pricing and it’s always the service, investment in R & D and consequently the value, and this is when the customer finds themselves in the line of fire, even if at first they don’t notice.  Often such aggressive pricing comes with caveats, terms and conditions that seem harmless but once looked into signal the challenges to come.

Not every attempt at aggressive undercutting results in a price war and most Australian businesses are smarter than to engage in retaliation, but nonetheless it is never a good idea for businesses with smaller market share to fire the first shots, because just as in a real war, it is usually the larger combatants, with larger armies and more resources that eventually win out.

The Sydney Morning Herald Business Day’s Sue Mitchell wrote this month that “more than $8 billion has been wiped off the market value of food and grocery retailers in the past three trading days amid growing fears of a British-style price war in Australia after Woolworths' latest profit downgrade last week.  Analysts and investors believe Woolworths' decision to accelerate its investment into grocery prices and service could trigger a more aggressive response from Coles, Metcash and Aldi, kicking off a full-blown price war that would damage margins throughout the sector”

This example of the UK supermarket wars is of course an extreme one, and not being an economist I have no doubt neglected to mention a multitude of other factors, but the point I am making is that the first shots fired in any price war begin with undercutting competitor pricing.

Great article Brendan. Do you think that Marketing has a part to play in these issues?? If you don't understand or cannot justify your value proposition, the easiest thing to do is drop your price is it not??