First, let's list the advantages:
If prices are reduced by reducing costs, this has a positive effect on the wallets of consumers who save on purchasing this product, and on the state of the market as a whole. A price reduction can lead to subsequent cheaper production of other products. So, if a bakery pays 15% less for flour than before, it will be able to sell its pies and baguettes with a corresponding discount.
Price competition does not allow for an unreasonably high margin to be included in the price. A monopolist can set any price for its product (within reason), and the presence of other players on the market forces sellers to restrain their appetites.
Consumers can afford more kuwait email list goods and services for the same money . In addition to the direct benefit for buyers, this has a beneficial effect on the market as a whole: the growth of trade turnover stimulates economic development, new players appear, and the choice expands.
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Flaws:
A significant price reduction may result in the displacement of smaller players from the market and the establishment of a monopoly on goods or services.
Dumping by one of the sellers forces competitors to also reduce prices. As a result, profits decrease, part of which the company spent on improving the product. As a result, consumers seem to win, but enterprises have significantly reduced opportunities for development, which leads to market stagnation.
Price competition and price wars make long-term planning difficult and create obstacles to developing a long-term strategy for a company's activities. Let's say a product sells for 1,200 rubles with a cost price of 800 rubles. When planning, you rely on current indicators, but as a result of competitors' actions, you have to reduce the price to 1,000 rubles. Consequently, the profit per unit of product has decreased from 400 to 200 rubles, which inevitably entails changes in investment calculations.
It is for this reason that long-term plans are drawn up according to two scenarios - for a pessimistic and an optimistic scenario.