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A Race to the Bottom

When industries deregulate, their managers face unfamiliar challenges. Price wars are often the unfortunate, unnecessary and result in a Race to the Bottom.

· The wrong pricing strategy can destroy corporate value faster than almost any other business mistake. And when industries are about to be deregulated, managers habitually adopt ill-conceived pricing policies that are almost guaranteed to damage their companies and erode services to customers and the community,
· These flawed pricing policies—common among deregulating telecommunications, transportation, and utility companies as well as other businesses—represent efforts to hang on to customers. Managers cut prices preemptively to fend off new rivals and then launch full-fledged price wars in hopes of outlasting attackers and emerging victorious from the rubble. This, at any rate, is the hope; the reality is usually quite different.
Source: McKinsey Article March 2001

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I know of consultants who have advised "put your prices UP"
"But we will loose to out to competitors"
"No you will not because customers will think that if you charge more then you have a superior product or service to sell"

You put your prices up 25% and you may loose 10% of your customers, but you are still in front.

Maybe you did not want that 10% as customers as they caused you staff grief by being late, having overweight baggage, etc.

Staff moral goes up, people smile and it flows on to customers.

The only unhappy ones are the bean counters who want to cut costs to the bone and charge less in a deadly race to see who will be the first to leave the industry. Yesterday 12:22

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