Entering into a price war is usually a distant thought for the average Zambian entrepreneur. On the one hand, some often chose to ignore it and face certain doom over the long run (evidence from small businesses that have closed down due to failure to compete on price). Others on the other hand, chose to engage in a war without fully understanding the consequences and not know how they can compete. The truth is, price wars are ugly. They have been the demise of many good businesses over the years. When we looked at the low cost airlines in the USA, we found that price wars were so ugly that management teams would forego profits for market share much to the dismay of shareholders. We have also seen evidence of price wars in the Zambian noodle market (Ezee Noodles taking on in store brands from major retailers and Chinese offerings). However, it does not have to be ugly if the players in the game take steps to protect their earnings. This is how they can approach it from the perspective of Akshay R Rao’s Harvard Business Review (HBR) article with additions from the team at TFHZPC. Non Price Responses This includes revealing your strategic intentions and capabilities, competing on quality, co-opting contributors and lobbying for higher standards of products from regulators. Evidence of Non Price Responses in Zambia When the Bank of Zambia makes a policy statement on revision of interest rates, the banks fall over themselves to get as much information about the revision of their revised interest rates. By so doing, they are being open about their strategy. MTN, Zamtel and Airtel have all exposed their tariff plans (although required by law) subsequently revealing their cost advantages. A look at some of the participants at Zambia Bureau of Standards (ZBS) shows the intention of players who seek to protect their value. In Lafarge versus Dangote et al., the former increased their number of offerings in cement types (road cement, slab cement, plastering cement etc) as opposed to their competitor’s generic 32R and 42R flavors. Price Responses This involves using complex price actions, introducing new products, deploying simple price actions. Evidence of Price Responses in Zambia When purchasing data bundles from any of the 3 mobile players, customers have a choice from plethora of complex data packages to suit a customer’s needs (So che and Spaka). Pepsi Zambia with its arsenal of soft drinks that are in all segments of the drinks market with matching prices. Vodafone Zambia bundling modems with 2GB data bundles as it enters the game mobile internet data. Epilogue The Zambian market is very diverse. Consumers are constantly seeking for the best price for a good product. Every industry must understand these desires in order to fashion prices that are acceptable to customers whilst protecting value. Understanding price elasticity of their products is also an important factor that can lead to a better understanding of why the company found themselves in a price war. On the downside, we believe that quality of product is being compromised and will have huge ramifications in the future. Stopping the war all together is arguably the best but we don’t live in a rational society. Continued education on product quality and enforcement of standards by regulators may be the only thing that can save us destruction of value and substandard products.
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