Business – 6.1 External influences – Competitors and suppliers | e-Consult
6.1 External influences – Competitors and suppliers (1 questions)
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Short‑term effects
- Reduced profit margins as incumbents match lower prices to retain market share.
- Increased sales volume may partially offset margin loss, but cash flow can become strained.
- Accelerated promotional spending and discounting, diverting resources from other strategic initiatives.
Long‑term effects
- Potential market consolidation if weaker incumbents exit, leaving a smaller number of stronger players.
- Shift towards non‑price competition (e.g., product differentiation, service quality) as firms seek sustainable advantage.
- Re‑evaluation of cost structures; firms may invest in automation or supply‑chain optimisation to survive lower price points.
- Brand perception can be damaged if low prices are associated with lower quality, influencing future positioning decisions.
Overall, a price war forces incumbents to balance immediate defensive actions with strategic adjustments that protect long‑term profitability.