The implications of price wars for a company
With the market base being one of the most critical aspects of every business, retaining and gaining a more significant market share by reducing prices is among the essential tactics firms use. Many companies have found it hard to woo companies using other methods, turning to price as a weapon for battle. When other companies within the same industry and locality also choose to lower their prices in the spirit of competition, price wars ensue. A price war is “commercial competition characterized by the repeated cutting of prices below those of competitors” (Bresnahan 1987, p. 457). Price war brings various implications to a company.
Firms may find price wars beneficial as the winner always get a more significant market share, consequently leading to profitability in the long run. Nevertheless, price wars can also come at a high cost. Firm’s profit margins are likely to decrease significantly as a result of lowering prices. The decrease in the profit margins can threaten their survival and result in extinction. Small firms can be forced to close as dominant firms in the industry may outplay them.
The best way to deal with a price war is to evade this type of direct conflict by employing a variety of strategies. One of the ways to deal with price wars is to develop a new product. Businesses that resort to creating new products during these wars often find it beneficial as they no longer have to match their competitors’ price cuts facing price wars often resort to creating a new product. Another strategy is to try and cut off the competitors’ supply lines by engaging in strategic partnerships. This tactic is aimed at creating shortages and stock-outs for the competitors. Companies may also choose to switch the competition to quality instead of price. Customers may be sensitive to quality, not prices; hence in-depth research of the market needs is very important.
Importance of understanding the drivers of profitability
The success or failure of any business is will always be identified by its capacity to bring satisfactory comebacks to its stakeholders or owners. Though stimulated laborers, innovative products, and excited customers are measurements of success or failure of a business, they still play secondary as the primary measurement is profits (Petersen et al, 2018). Profitability is a critical element in the sustainability and survival of a business. An understanding of the profit model of a business and creating a well-thought strategy is a massive leap towards the success of the firm. There are factors known as profit drivers that have a significant impact on driving a business towards profitability.
It is vital to comprehend the profitability drivers. One of the reasons why understanding these drivers is vital is to be able to identify the business’s strengths and weaknesses. Those charged with running a business like managers need to identify the strengths and weaknesses of firms they are in charge of to make informed decisions that will help achieve profitability (Petersen et al, 2018). Managers also need to compare the performance of the firms against their competitors. This knowledge is important for the business as it enables it to retain and gain its relevance in the dynamic competition.it will also allow the firm to establish its position as far as profitability is concerned amongst its competitors. The knowledge of profitability drivers also helps the company to compare its present against the historical performance.
Whether a company is utilizing her resources well and effectively, whether it is using her capital fund wisely, whether their current strategy is bringing desired results and whether its cost structure reflects the standard of the firm, are fundamental aspects of profitability that a manager can answer when they understand the drivers of profitability.
Amazon rare and valuable resources and sustainability of Amazon’s competitive position in the online retail business
Various organizations have diverse packages of resources, with some of these resources being inflexible in their supply or incredibly costly to imitate. Companies with the most valued resource packages can increase a competitive advantage over their opponents in their industry. The strength and weaknesses of a firm’s resources and abilities have been measured by whether the resources allow the business to react to both threats and opportunities in the business environment (Guo et al, 2019). Those that have considered being able to have been known as valuable. The numbers of competing firms that own such valuable resources have also come to considerations with rare, valuable resources being a source of competitive advantage.
Amazon Prime has proved to be of value and rare within Amazon.com. The very useful and well-organized network of satisfaction centers coupled with technology that lets the process of distribution to be automatic renders Amazon Prime a massive resource for the company.Amazon.com can use its prime consumers as leverage in counteracting any business threat if they emerge. Otherwise, Prime clients can be an impeccable unit of reliable customers if prospects demanding a large client base emerge within the trade.
Amazon’s market dominance is so established in the retail business that knocking it off from its position will be very hard for its competitors. The primary competitive advantages of the firm are the low prices that it offers, the diversity of products it offers stretching from grocery to digital, same-day delivery, and the handiness of shopping from anywhere at any time. Its regional fulfilment centres allow the organization to cut on shipping costs. It will be tough for any retail business to imitate the firm’s robot company that deploys non-human labour in its warehouses (Guo et al, 2019). The company has been able to retain its customer base and gain more clients making its profit margins to increase. All these combinations of sustainable competitive advantages Amazon.com has made it very hard to compete with.