Price wars and profit margins

Question

Can you have price wars in high end segments of a product? Or is this something you see only in “value / low end” market? Couldn’t a competitor technically start a price war to squeeze you out even in high end markets?

For Profit margins, is there a general rule of thumb like above 10% is good?

Answer 1

Yes, you can have price wars at high end segments. That being said, at luxury products (which can be different than high end), a high price signals exclusivity, which has value on its own, so it is usually not a great idea to have significant drops in prices).

No rule for profit margins. When you have experience, you actually have a decent view on how large margins can be in a given industry. There are industries operating on averages of 30% EBITDA margin, while others on 3-4%…

Answer 2

Hi there,

This is indeed an interesting question which is probably relevant for quite a lot of users, so I am happy to provide my perspective on it:

Generally speaking, you might encounter price wars in high-end segments though they are rather rare. The higher the segment the less price-sensitive customers tend to become to the point that higher prices might as well indicate exclusivity and thus increase WTP (willingness to pay).
Profit margins cannot be generalized but are rather industry- and industry segment-specific. For instance, while most retail segments operate with (lower) single-digit profit margins, profit margins in the tech industry seem to be (significantly) higher and double-digit.

In case you want a more detailed discussion on the pricing dynamics and profit margins in specific countries, please feel free to contact me directly.

I hope this helps,

Hagen

Answer 3

Hi there,

You can, but it's rare. It's fundamentally antithecal to the premis of luxury/high-end products (that price matters little). It's just not a winning strategy!

The main scenario where I can see this happening is where a new competitor comes in, and, in particular, they're bringing in some sort of new product (think Rent the Runway).

Answer 4

Hey,

Price war can happen across the low to high end product segments and could be triggered by external factors (PESTLE), competitor activity etc. Most of the time this happens in a highly competitive market or when a company wants to grow market share or enter a new market. Check out this very relevant and recent Q&A on this topic: https://www.preplounge.com/en/consulting-forum/capturing-market-share-with-price-wars-9413

For clarity on profit margin check out this great Q&A discussion: https://www.preplounge.com/en/consulting-forum/high-margin-vs-low-margin-10724

Answer 5

Hi!

Very interesting question!

I agree with the other coaches on this, so not much to add here!

Best,

Anto