We continue with our competitive price moves and cover now assessing your options. This includes step two defining your own goal and step three identifying your own prevention moves. As a business they're really only three types of goals you usually have. It's either achieving a target rebalancing your portfolio, or managing compatitive moves. So let me give you an example for what to target could be, and the corresponding price moves. Achieving a target is usually along the lines of increasing your volume by 2%, or improving your over all margin by a 150 basis points. And the price moves well, if you want to grow market, you probably have to reduce your price a little bit, so price moves for the rentals could drive volume, or if you want to make more margin, you probably have to identify price deltas and segments who could pay for that. Rebalancing the portfolio is usually something along the lines of offsetting the market decline in one segment, like the first homeowners or shifting revenues to a completely new category like Game Rooms which we didn't have before. The price moves here by increase in price for family with kids to drive margin as an example or consider your price re-positioning with a new product category. Those two goals usually have active price moves. Now managing competitive moves already sounds a little bit reactive. And here, this example modern is having aggressive price moves to get into the bed rooms for the first home owners and obviously if you were attacked, you need to defend or consider an attack in another grassland to take share from the attacker. Let me give you a couple of general rules of thumb that relate back to our three different types of fields in our game boards. Attack on the Castle. If someone attacks you in your on your home turf you want to defend it and you protect it by lowering the prices but don't over do it. You want to lower the prices just enough to defend your market share and the rule of thumb over experiences is usually in a range of 20-40% of the price change the competitor has made. So if you compare to drop the price by $100, you should think about a range of $20 to $40 to respond. Now if you want to attack a competitor for example to gain market share, to retaliate or to divert the focus you need a little bit more force. And here the rule of thumb is use 60-80% of the competitor's force. If you are being Attacked on a Grassland avoid reducing prices in the same grassland. Actually, try to compensate for potential market share losses in an adjacent grassland and try to balance your overall grassland market share. And lastly, when there's an Attack on a Desert, try not to respond with a price war. Deserts are deserts because the profit pools are small from the beginning. So a price war will do a lot of harm and erase all possible profits. Rather think of repositioning yourself as a premium brand for example to justify a price premium or other non price moves to the price cuts. We now move on to the next step which is about charting the possible competitive responses. Let's discuss first when it's most appropriate or when do you really have to feel competitors to do drastic responses to do your moves. Therefore criteria that I look at. It's the overall comparative pricing strategy. And has this comparative in the past P rather conservative or failure aggressive. What's the cross-elasticity with your competitors? If they buy one unit from you does this mean they buy one unit less from their competitor or is it actually not that bad? What is the competitor's strategic goal in the area that you are doing your price moves? Is it in focus and therefore important or is it not really in focus? And lastly what's competitor's margin room? Is there very little for him to move on price down or does he have a fat margin cushion that allows him to do big moves? Now if all of your answers to these questions are really more on the right side of these scales then you can expect probably a pretty strong compare the response to your price move. The most important indicators you have to observe for competitor responses are the market share and their profits. So we have a little example here where modern is doing a price move and you anticipate competitors to reduce price to counter that and you'll have to get a sense of what this means, how much they could respond and what this means to your market share. So this is the base case and this is modern's current market share. Now if competitors as a response to our price move cut their prices by 5% we actually lose a little bit of share and then as you can see, if they cut 10% or more, 15 or even 20, then there is a significant drop in our market share. So this gives you a sense of how far you should probably push it. Now for the profits, you do the same thing for the same competitor price cut scenarios you want to map out how we, meaning modern in this example, fare profit wise and how Smith, who is seen as the key competitor now does profit wise. And here you can see quickly that with in a 15 to 20% price reduction, Smith is going to lose really out a lot on their margins. So they're probably not doing that kind of a drastic move to counter our price move and you can see that it's a lot more reasonable in terms of margin in the 5 to 10% price cut range.
