Staying out of Trouble With Innovation

Matanovich, Tim
March 2004
Marketing Management;Mar/Apr2004, Vol. 13 Issue 2, p14
Case Study
This article presents a case study on price competition. A firm referred to as Animaceuticals is a leading supplier of pharmaceutical products used by livestock producers to maximize yield. Like the typical generics firm, Animaceuticals chose to go to market with its prices set at a fraction of the market leader's price. In many markets, this type of generic price competition leads to an initial migration of customers but market leaders are able to hold on to the bulk of their share. Shares and prices ultimately stabilize with branded and generic alternatives priced at two distinct levels. In Animaceuticals' case, however, prices have not stabilized. Unintended price competition continues and is seriously eroding margins across the industry. A market test of a new price structure prompts a competitive response. A price promotion targeted to one segment bleeds into another, inciting competition. Or, the single most frequent cause of price competition we observe: Valuable services are offered at little or no cost. As a place to begin, Animaceuticals leaders must focus primarily on margin improvement rather than share growth. Second, Animaceuticals should begin to raise their product prices. This action should begin to stabilize its market. Third, Animaceuticals should provide its clients with service options instead of the whole offer for free.


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