The moment that Eagle Boys entered into a price war was the moment the company failed its shareholders, franchisees, staff and most importantly customers. You see when businesses start to compete on price they are now selling nothing more than a commodity.
And when price is the deciding factor the consumer there is no brand loyalty. Instead businesses whore themselves for what-ever piece of revenue they can get. Price wars can be brutal.
They can be devastating to an individual, a company and the profitability of an industry. The aftermath will result in businesses being much worse off than when they started and in the case of Eagle Boys insolvent.
Yet this type of strategy is becoming more common. We only have to look at our supermarkets in Coles and Woolworths.
What to do if your industry is in a price war
If the competition starts cutting prices and looking to instigate a price war the first response is to take a step back and look at the entire situation. Run an analysis on the industry, the competition, consumer behaviour and of course your own business.
Engage in an old fashioned SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) to get a good read on the situation. After a basic Google search I stumbled upon a 2010 report from Technomic called the Pizza Consumer Trend Report.
There is one piece of information that Eagle Boys could have utilised and added to their strategic advantage. The report found that 2 out of 5 (41%) of consumers wanted establishments to use healthier ingredients, organic toppings and locally sourced ingredients.
This compliments the consumer behaviour that we witnessed when customers of Woolworths and Coles started purchasing the more expensive milk. Price wasn’t an issue it was the fact the consumer was contributing to something bigger. They were supporting farmers.
Given that Eagles Boys was founded in a country town and have a lot of stores in these areas this should have been their strategy. Position themselves as the pizza chain that pays real farmers a fair price for their produce so they can deliver the best quality pizzas.
To emphasise this they could have played the patriotic card where Eagle Boys was started here in Australia. Other pizza brands were started overseas and franchised here. This is a battle that Eagle Boys would have won, and won well.
Going back to their foundation of operating in rural towns and looking after the farmers would have very much been aligned with their brand story. Imagine the commercial for Eagle Boys going back to Albury where they first opened and having local farmer providing the produce. Now that’s a brand story that consumer would love to be involved with.
There is no secret that Domino’s dominate the pizza technology space. Whether it’s tracking your pizza from the oven to your door or using their flawless app they are clearly the leaders in the space.
But whilst all these additional tech quirks are great for metropolitan areas they are not as necessarily for regional and rural areas. For starters, tracking a pizza delivery in Albury would seem somewhat redundant as when they say it’ll be 20 minutes it generally is.
No over populated city of drivers to hold up your pizza in the country. Additionally the National Australia Bank (NAB) Online Sales Retail Index for March 2016 shows that metropolitan residence bought close to 74% of online purchases in the past 12 months. Meaning that only 1 in 4 people in rural and regional areas made online purchases.
Prevention is the best cure
If you operate in an industry that is price sensitive there are steps you can take to prevent a price war. The first being to identify if you are in a price sensitive industry. A way to test this is by identifying if your products are inelastic.
Inelasticity is a word used in economics to describe goods and services where a price increase would have no impact on demand. Generally identified when you can increase your goods and services by 1% and there is no change in demand.
The higher you can raise prices and still maintain demand the more inelastic your goods and services are. Meaning the less price sensitive your consumers are. Fuel is a great example. Fuel can be between $1.20 and $1.40 and I wouldn’t change my buying behaviour despite a 16% price increase.
Bunnings let customers know that if you can find a product elsewhere cheaper they will beat it by 10%. Flight Centre also has a similar offering. These price match strategies are actually less for customers and more for the competition. Imagine trying to engage in a price war with Bunnings who will beat your price by 10%? Companies wouldn’t even consider it.
Remember the ads run by the Greater Building Society? Take a home loan and get a free holiday. You know not once did they ever mention their interest rates in those commercials? Yet they were such a huge success. They were competing on features and not price. And you can’t put a price on a free holiday. This strategy was so successful that Greater triples their home loan portfolio within 2 years.
McDonalds and Disney are the masters of strategic partnerships. Take your children to the latest Disney film and now it’s like you are obligated to go to Maccas and get the complimentary happy meal toy. Or you go to McDonald’s first and get a toy and well now you have to see the movie so the toy has context.
Finding a complimentary service and creating a win-win where you can get customers based on referrals will remove the need to engage in a price war.
Whilst price wars are a part of life it is important for businesses and entrepreneurs to understand the context. A lot of leg work can be done to prevent a price war before it begins and even if one does start in your industry you do not have to engage.
As we can see if Eagle Boys instead decided to pause and reflect on their strategic positioning they could have avoided a price war and executed on a different strategy. It’s essential to understand your industry, yourself, the competition and your customers before responding to an impending price wars.