Competitive Analysis:
"Flanking in a Price War"
Article Critique
The Article "Flanking in a Price War" discusses how an economic experiment and data were used effectively in the Quebec grocery industry. The beginning of the article gives some history of the industry, introduces the major participants, and describes how one firm in particular, Steinberg, used a price cutting strategy to became the dominant player for 30 years.
The article then goes on to explain the economic climate that changed the competitive environment from one of near-perfect competition to the oligopoly that existed in the 1980's. This was followed by several examples of how local legislation, and environmental factors kept many of the smaller independent stores and chains in business and clawing for market share.
In 1983, it became obvious to most observers that a price war would soon ensue, and most likely be initiated by Steinberg. One firm, Hudon and Deaudelin, wanted to be prepared in the face of such a price war and had a study based on pricing experiments performed. To summarize, the experiment was performed and found that different price elasticities existed for differing products. The difference was mainly in the products ability to be stored for long periods of time, and that by raising prices of stock-up items and lowering the prices of non stock-up items, one could minimize the loss to margin and continue to fund the price war.
When the price war finally came, Steinberg used an unusual tactic in lieu of slashing prices. It offered a rebate for every dollar spent that could be applied to the customer's next order in the store. This was accompanied by a new focus on cust ...