In a situation where a company is faced with competition, from another company within the same industry using price as a tool for competing, several alternatives can be taken by the business organization that is facing the competition. Using price in competition is mostly chosen by business organizations because they consider this as the best weapon. However, this move may bring about price wars (Anonymous: How to fight a price war, 2010). According to the BNET Business dictionary (2010), the objective of business organizations engaging in a price war is in most cases to bring about low-price appeal but this may in turn bring about a continuous war that may result in a reduction of the participating business organizations’ profitability.
However, at one time or the other, the managers of companies will have to take part in fighting a price war in the cause of carrying out the management activities in their career. The starting point of a price war may be a simple reduction in the price which may be through discounts and this may lead to retaliatory price cuts by other organizations. These retaliatory price cuts may become perpetual and intensify into a great price war. Therefore, according to Markovits (2008) and Miltenburg (2005), it is often a sensible move to carry out a critical assessment of the alternatives available before deciding to engage in a price war by responding to a price reduction with a retaliatory price cut. More so, using price in competing in the market has various implications. For instance, a pattern of reducing the price may send a message to the clients to stay in expectations of further reductions in the price. In turn, this may lead to some customers postponing their consumption at a future date at which they expected to purchase the product at a price that is even lower (Mankiw, 2008).
Several other alternatives are at the disposal of the managers other than price that can be chosen and be employed in order to stand the competition in response to the price reduction that may be undertaken by a competing firm (Anonymous, Avoiding a price war, 2010).
This paper is going to look at the Ashburn Furniture Company. This is a company found in Richmond. It deals in selling beds, mattresses, sofas, and landlord furniture to the customers in all of the local area (Anonymous, Ashburn Furniture, 2010). Another company which also deals in furniture is planning to introduce the beds, sofas, and landlord furniture at a lower price. This paper is going to consider the moves that are supposed to be taken by Ashburn furniture in responding to the price reduction and the recommendations will be made to four departments which include the production, marketing, human resources, and finance departments. Recommendations are going to be made to the senior manager of each and every aforementioned department. These managers are supposed to work in a well-coordinated way to ensure that the laid down plan to deal with the competition turns out to be successful.
Measures to be taken by the Senior managers of Ashburn Furniture
The Ashburn Furniture Company is supposed to take appropriate measures to ensure that it remains competitive in the market despite the threats that are being posed to it by the rival company that is seeking to lower the prices of the products which are the main products of the Ashburn Furniture Company. Four departments which include the finance department, the marketing department, the production department and the human resource department are supposed to take some measures that will have to ensure the company remains competitive in the market. In general terms, the company is not supposed to engage in a price war because this can turn out to be injurious to the company. The company is going to focus on quality of the products and also take measures to alert its customers of the possibility of facing a monopolist on the market and the potential of this monopolist to offer poor quality products to them.
The marketing department of the Ashburn Furniture Company should first of all, before anything else is carried out, take a step to carry out some research. This will help the company to establish the intentions of this company that is coming in with a price reduction. This rival company must be having particular intentions and that is why it is ready to engage in a price war. The major intention of this rival company might be to seek a way to drive out the Ashburn Furniture Company from the market. This company might be laying down a strategy in that it might start charging lower prices in the local market where the Ashburn Furniture Company is very much established but in other regions, the company may still be charging high prices.
In such a case, two fundamental moves need to be taken by Ashburn Furniture Company instead of rushing into fighting this war. The customers in the rival company’s home market should be made to be aware that they are being charged high prices whereas in another particular market, the customers there are being given a special price that is reduced. This will enable the customers to take a step to question the management of that company as to why they are engaging in this. This might in turn serve to alter the original intentions of the rival company.
Another move that can be taken by the marketing department of Ashburn Furniture Company is to mobilize the customers within the locality to ask for their support. These customers should be alerted of the potential of having a monopolist in the market. The negative consequences of having a monopolist in the market should be pointed out clearly so that these customers can well be aware of them by the marketing department. These customers should be alerted that the reduced prices might only be there for a short time but in the long run they might be charged even higher prices of the products that might be possible of a reduced quality.
According to the Business Encyclopedia (2010), to carry out analysis that is effective, there is an involvement in undertaking of analysis of some key areas. These areas encompass customer issues and business organization issues. The customer issues may include customer segments which may arise if there is a change in price and price sensitivity of the customers. The company issues may encompass such issues as the capabilities the company has, the cost structure of the company, and how strategically the company is positioned, among other issues.
Where the business organization spends its time effectively to clearly analyze these issues, the organization will realize that there are very few alternatives for it to select from. The company will realize that it will have to either diffuse the conflict or fight the conflict. In the case where these two alternatives or options are not applicable, the company will have to move away from the conflict.
The company will have to focus on quality of the product as a weapon to survive in the competition. The quality of the products will have to be improved. As this department is responsible for the distribution of the products, it will have to carry out the distribution of these newly designed products. The manager in this department will have to ensure that the customers are aware of these new high-quality products. The department will also have the responsibility of alerting the customers about the possibility of facing a monopolist in the market if they rush for the products that are being offered at a lower price by the rival company. This department should ensure adequate distribution in the local market and even in other markets where the rival company might be established. This might bring in great positive results, especially considering that the rival company might be still charging higher prices in this market in which it is established and only seeking to drive Ashburn Furniture out of the market.
More so, the manager in the marketing department will have to be keen enough and may make use of the quantity discount programs to offer protection to themselves against the price wars, especially in the new market where the rival company is established. This will help in evading across-the-board reductions in prices and hold the price reductions to the lowest level possible in those areas they can lack defense. In this way, according to Anonymous, (Management in an economic crisis, 2010), the companies can engage in the localization of a price war to a theater operation that is limited, reducing the chances for the war to intensifying in the market. Here, the selective pricing tactic is to modify just specific prices.
Basing on the results that will have to be given out by research carried out by the marketing department and the analysis carried out by the finance department, the manager of this department will have to come up with a new product design that meets the set plan. All the requirements for new involvement in the production process will have to be presented to the financial department as well as the human resource department to ensure there is successful production. Sometimes, clear analysis of the market shows that the various segments of the customers exhibit levels of sensitivity that are not the same but are of varied degrees in regard to price and quality. By a company being aware of these customer sensitivities to the price and quality of the products, serves to provide a basis on which better decisions can be set up to counter the price reduction that might be carried out by a competitor. These decisions can be carried out most creatively and the price wars can completely be avoided.
Having information about the customers’ sensitivity to price and product quality, the company engages in setting up some strategies that can focus on the quality of the product and take time to warn its customers of the potential of obtaining poor quality products from the competitors even if the product may be offered at a lower price.
The manager responsible for the designing and production of the products is instructed to review the product design and try to ensure knowing the customer needs in regard to the appropriate design the customers want. The department should ensure using high-quality material in producing the furniture and offer this furniture at the same price they have been offering to the customers.
The manager in this department will have the responsibility of ensuring the operations are well coordinated and the manufactured products are well maintained to ensure these products retain their quality. Where there will be need for new technology in the production of the newly designed products, the department will have to ensure that the appropriate manpower is available to manufacture the products successfully. The available personnel will have to be informed about the adjustments in the operations and where need is; this person will have to be offered some training.
Many ways do exist that can be employed to stop the war in advance. One of these ways is to make sure that the competitors get to be aware of the justification of the pricing policies the Ashburn Furniture Company has adopted. According to Holloway (2003), declarations should be made to alert the rival company that the goal of the Ashburn Furniture Company is to fight the price war by utilizing all the resources at its disposal. In most cases, however, making such declarations about the low prices or about engaging in promotions are not strategies of low price at all. The aim of the declarations like these is to give out information to the competitors that the company prefers to engage in competition using other strategies other than engaging in using price to deal with the competition. At the time these competitors come to agree that competition on the basis of other dimensions other than price will result in higher profits, there is a tendency of these competitors to go along.
Another move that can be taken to stop the war before the war starts is by making sure the competitors get to be aware that the costs of your company are not at the same level as those of the competitors but they are low instead. This is a move that can prove to be quite effective especially in sending a warning to the rival company of the potential results of a price war that can be quite detrimental to these companies. Following this, at some point, it can turn out to be of great advantage to a company to make known its cost advantage. This indicates that a business organization that has relatively low variable costs enjoys desirable benefits in the price war for the reason that the competitors are not able to sustain a price that is below their variable costs in the long run.
One of the roles of the finance department is to carry the analysis of the production costs (Seabury, 2010). It then follows that the finance department will have the responsibility of carrying out thorough analysis of the costs and present a report to the general manager. The department will also have to give a clear report on the pricing policies the company has adopted. And this information will be utilized in making the declarations that will have to be known by the rival company.
More so, since the Ashburn Furniture Company intends to engage in competition on the basis of the quality of the products which will call for carrying out some adjustments in the production and marketing of the products, these new adjustments can not be realized without having some financial implications. The company will have to incur some extra costs to implement this new plan. This department will have to give out some extra funds to purchase the new material that has to be of a higher quality. In the new design of the product, there might be need for some new technology that the workers might not be familiar with in the initial stages. Therefore, the department will have to set aside some finances that are going to be used to either outsource the appropriate manpower to ensure successful production of the new design products or offer training to the existing personnel about the new design. Finances will have to be provided to the marketing department to engage in some research. More so, funds will also be required in carrying out the campaign of realizing customer awareness about the new high-quality products and also making the customers aware of the motives of the rival company that is offering low prices.
The human resource department
This department will have the responsibility of ensuring there are sufficient and efficient human resources in place. Following the need to deal with the upcoming competition with the main objective of the company emerging as the winner, several initiatives will have to be taken by the senior manager of this department.
Since the company is not supposed to engage in competition basing on price, but on quality instead, several adjustments will need to be carried out on the usual operations of the company. There will be adjustments in the production process since some improvements will have to be carried out on the products. More so, there will be improvements in the marketing process. These adjustments imply that there is a need to bring some additional personnel and even carry out more training of the existing personnel.
The improvement on the quality of the product may have to call for some improved technology that will have to be employed and introduction of new materials with which the existing workers may not be familiar. Therefore, this department will engage in offering training of the staff and at the same time will have to outsource employees to ensure there are no delays in the process of production. The company may engage in carrying out recruitment and selection of some new additional staff that will have to assist in the production and marketing of the products.
Other than training the workers in regard to the production of the products, workers who are responsible for the marketing of the product will as well have to be offered training on the way this new higher quality product is going to be marketed. This training will be in regard to the way the customers are going to be made aware of these new products and perceiving them as being better products than that of the competitor. More so, they are supposed to be trained on the way the company should penetrate in the new market where the competitor is established.
To conclude, although initially, the Ashburn Furniture Company is going to incur some extra costs in dealing with the competition, once it has won the customers’ loyalty through the awareness it presents to them of the possibility of facing a monopolist, it will have to recover these costs. Once the customers get to perceive the products of this company as being of high quality, the company might have an opportunity to slightly increase the price of the products, and the customers will still go for the product and ignore the products offered by the rival company. The company might also be able to penetrate the home market of the rival company and increase its sales because of the perceived high-quality products Ashburn Furniture is offering.
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