Price wars are potentially very harmful for all stakeholders, because they may lead to the lower profit margins in the industry, damaged image of the company and worsened quality of the products (Rao, Bergen & Davis, 2000). Therefore there are almost no winners in the price wars. Tit-for-tat strategies deprive the companies of the resources that could be used for the innovations and improvements of the products and make them dependent on the rapid increase in the number of customers.
Beat and Spotify have been involved in the price war since 2014. It is difficult to predict who will win, because Spotify has a lot of subscribers and Beat gets a lot of benefits from cooperating with Apple and selling headphones. Perhaps Spotify is to suffer more, because its expenses are very high due to the expansion in the new markets. The prices will be reduced by Spotify and Beat until the level when the companies start to experience the financial problems and the growth in the number of subscribers will significantly slow down.
Amazon, Google and Microsoft had to start a price war in order to popularize the cloud computing and create the environment when it will be cheaper for the companies to store the data in the external clouds rather than on the own servers. However, at the moment not all companies would like to risk their privacy and special hybrid cloud computing is offered for such companies (The Economist, 2014).
In general, the companies should not start the price wars, because there are plenty of non-price and price responses to the steps taken by the competitors. The companies should compete on quality, differentiate their products, build awareness and emphasize the risks related to the low-priced products. Cooperative partnerships, for example between Beat and Apple, also help to offer the unique deals to the customers. In terms of the price responses, the companies should apply various loyalty programs, price promotions, launch additional products in order not to damage the image of the main product, and simply adjust the prices to the competitors’ prices (Rao, Bergen & Davis, 2000). The companies should remember that the threat of a price war is a credible threat and there are a large number of examples from different industries when the companies could not withstand the price cuts. Therefore, at first the companies should think of the other approaches that could bring the competitive advantage.
References
Rao, A., Bergen, M., Davis, S. (March-April 2000). How to Fight a Price War. Harvard
Business Review. Web. Retrieved from https://hbr.org/2000/03/how-to-fight-a-price-
war
The Economist. (30 August 2014). Silver Lining. Web. Retrieved from
http://www.economist.com/news/business/21614186-tech-giants-are-waging-price-
war-win-other-firms-computing-business-silver-lining
