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Teaching notes · lesson 14 · a 20-minute class

How to respond to a competitor price cut

Hold, match, or answer with the brand: what each one costs. Tracks: Strategy, Pricing.

Open the lesson

Learning goalsBy the end, students can

  • List the answers to a rival's price cut: hold, match in part or in full, or answer with the brand.
  • Explain why matching costs margin on every unit sold.
  • Judge an answer by profit over two years, not share next quarter.

The 20-minute classMinute by minute, with the lab on the projector

  1. 0:003 min, to 3:00

    Cold open

    Read the news line: Halvard Cola cuts its price for a year. Ask each table for its first instinct: hold or match.

  2. 3:004 min, to 7:00

    The idea

    Explain who the rival takes buyers from, why matching gives a discount to loyal buyers, and the evidence that most real brands don't react.

  3. 7:005 min, to 12:00

    Lab on the projector

    Set a 10% cut. Run hold, half match and full match. Compare share at the end and profit after media over two years.

  4. 12:003 min, to 15:00

    Pairs

    Pairs write the two-line note to the board defending their answer.

  5. 15:003 min, to 18:00

    Discussion

    Take the price war question: what happens if Halvard cuts again?

  6. 18:002 min, to 20:00

    Check

    Three lesson questions. Revisit the first instincts.

Discussion questionsWith what a strong answer covers

  1. Matching keeps more share. Why might holding still be the better answer?

    A strong answer covers
    • The lower price applies to every unit, including loyal buyers'.
    • In the lab, against a 10% cut, a full match costs about €5.6m more profit after media over two years than holding.
    • Share lost to a short cut tends to return when the rival's price does.

  2. What if the rival cuts again after you match?

    A strong answer covers
    • A price war: both end with lower prices and similar shares.
    • Rao, Bergen and Davis warn against matching by reflex.
    • Notes that in the game rivals answer your answer, unlike the lab.

  3. How can you answer without touching price?

    A strong answer covers
    • Brand media to keep the reason to pay your price.
    • A better product.
    • Explains this protects the price point rather than the share figure.

The lab as homeworkAbout 15 minutes for a student

Use the lab to cost each answer to Halvard Cola's cut.

  1. Set Halvard's cut to 10%.
  2. Run hold, half match and full match, noting share at the end of the year and profit over two years.
  3. Try a deeper cut and see whether the ranking changes.

They answer: Against a 10% cut, which answer kept most share, which kept most profit over two years, and which would you take to the board?

A strong answer covers
  • Quotes the lab's share and profit for all three answers.
  • Notes matching keeps more share but costs more profit than holding.
  • Makes a recommendation and defends it on two-year profit.

Students also answer the lesson's three questions. Their score is worked out on the server from their answers.

Set this lab as homework

Students open a link, do the lab, answer the three questions and write what they found. You see each student's quiz score and finding on your class page.

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