Price war is a marketing tool, its root cause lies in product supply, lack of difference, serious homogeneity, customers in China at present stage still promoting "cheap", enterprises use price war often can quickly improve sales volume and market share, some enterprises also can take advantage of the price war revitalize the capital, in order to develop new products, the backlog of inventory, Others aim to raise barriers to competition and reshuffle industries by weeding out shoddy producers.

Price war is an inevitable outcome of market economy, forcing some enterprises to reduce costs and improve management level. Generally speaking, the price war can benefit consumers, because the price of the products purchased is lower. For example, the price of goods is greatly reduced, which enables us to realize the dream of color TV, computer, car... These are undeniable facts.

We must also realize that price wars can only be popular for a short time, because price wars themselves will also cause profit loss for enterprises, which is often not sustainable, and will also bring some side effects to brands, markets and industries. This paper takes the construction machinery industry as an example to analyze the impact of price war on the industry.

Construction machinery equipment as a means of production, the price war has a greater impact on it, one link after another, the impact of price reduction will be transmitted to every link of the industry value chain, this is the "pass-through effect" of the impact of price war.

The pressure to lower prices will first be passed on to suppliers, who will have to expand and reduce costs. The former may result in suppliers having excess capacity and having to rely on their own dealers to absorb the backlog of inventory, which in turn affects OEM and dealer parts sales. Reducing costs is likely to reduce product quality, which has a knock-on effect.

The price war has greatly increased the sales volume of equipment, resulting in a serious supply of equipment in the market greater than the demand. For example, in a market with a demand of 1,000 devices, more than 2,000 devices have been sold. The result? A lot of equipment in engineering is good, they have more say, many big construction enterprises by buy equipment construction transformation to rent equipment construction, because the price is low, strong flexibility, light assets, they can even order only rent the big brands, only new equipment, signed on the rent and terms of payment "inequality" clause, because they have many of the choices. But this is very bad for the customer, no matter how harsh the terms of party A, there will always be someone to agree. Now the frequent occurrence of arrears in engineering payment is also related to the price war of equipment.

Larger equipment ownership leads to a price war in the leasing field. When labor costs and fuel prices rise, Taiwan shift fees cannot rise, making it more difficult for customers to make money. As the price of new phones drops, so does the price of second-hand devices. The second mobile phones in stock face the risk of depreciation and are likely to suffer losses.

In theory, a 30% drop in the price of new equipment will also reduce the sales potential of the post-service market (repairs and accessories) by 30%, since the potential of the post-service market is directly proportional to the price of the new machine. As the price of a new machine falls, old equipment may no longer be worth repairing, and even if it is not worth repairing with original parts, it may be more cost-effective to trade in or take parts apart.

Overhaul, refurbishment and remanufacturing businesses face greater risks. Who needs remanufacturing equipment when new machines are so cheap? Original parts are harder to sell and are under pressure to slash prices. In fact, the price of the new machine, maintenance of labor costs, parts are facing the pressure of price reduction, customers will of course calculate their own costs, evaluate whether the equipment is still worth maintenance.

The pressure to lower prices will also be passed on to r&d departments. If product margins fall, r&d costs may also be affected. The next generation of smart devices and driverless cars are expensive and cannot keep up with the pace of The Times.

Many companies see price wars simply as a marketing campaign and are particularly fond of the immediate effect of lowering prices on increasing sales. The price war is a nightmare for agents. Many agents lose every one they sell. In the past two years, the sales volume of equipment has reached new highs, but about 70% of agents have suffered losses. However, it is easy to reduce prices, but it is difficult to increase prices. If you do not increase prices, you will lose money. Once you increase prices, you will directly affect sales and market share, unless you have technological monopoly advantage or your competitors also increase prices.

People always think that the biggest beneficiary of the price war is the customer, but the fact is not the case. The price war leads to vicious competition in the leasing market, and the Taiwan shift fee remains low for a long time, and the equipment possession is increasing, making it more difficult for customers to make money. At the same time, equipment price reduction is A "punishment" for old customers. Imagine that you bought 10,000 shares of Company A yesterday, and today the price of company A has dropped by 30%. How do you feel? Excavators have met a similar situation, in 12 months the price of an excavator has dropped by more than one hundred thousand, than the old customer using excavator a year to earn more money, of course, he feels bad, because the hard work for a year in vain! The excavator in the hands of the new customers is tens of thousands of dollars cheaper, and the bidding is more competitive.

In order to reduce the stagnant inventory and sales task pressure, agents to carry out large price promotions on accessories, usually with good results. But you ever think of, the customer won't buy you don't need spare parts, sales promotion is tires with good effect, filter and oil of common vulnerability, comsumption and maintenance parts, although it is just this kind of parts need, its demand has periodic, customer just because of cheap, parts of the next few months to buy the warehouse in advance, agent sales will decline in the next few months, It doesn't actually increase sales, it's just an advance purchase. The point is that customers are no longer willing to pay full price for accessories, believing that they have "stolen" so much money that they will not buy them again until the next sale.

The price war has greatly devalued the brand value established by the enterprise over the years. For many years, a customer has always believed the manufacturer's propaganda that their filter element cost is high, but the quality is good, and the performance of the diesel engine can be fully guaranteed. All of a sudden, the price of the filter element is 30% lower, so was all the propaganda lying to me? Should you trust this brand in the future?

We must be clearly aware that price war is a double-edged sword with advantages and disadvantages. For construction machinery, many side effects may be unexpected due to the transmission effect of price war. When the price war leads to the survival of agents and customers are at risk, we should reflect on what to do? What makes you believe that you are the last survivor of the price war, that you can corner the market and raise prices?

We are very proud that domestic brands have taken market share from foreign brands through price war. But we have not thought, some foreign brands put the health of dealers in a more important position, do not want to participate in the price war, take the initiative to give up some markets. We see it as a sign of weakness, but they see it as sticking to their strategy. Never underestimate your competitors, especially if they are more experienced and technically sophisticated than you, and never underestimate their energy. "Weakness and ignorance are not obstacles to survival, arrogance is" (novel The Three-Body Problem).

It is certainly possible that foreign brands could make a comeback in The Chinese market if there are problems with some Chinese brands' agency channels. Today, some Chinese enterprises also indulged in price wars and fight for market share, the international well-known brand has already put the vision in the future, quietly buying artificial intelligence and automated driving firms, research and development of intelligent construction equipment, unmanned mining and electric equipment, the use of augmented reality AR and artificial intelligence AI to improve service efficiency.

It would be naive to think that we have caught up with or even surpassed them in technology and products just because our excavator market share in China exceeds foreign brands. In the future, will Chinese brands catch up or lead on a brand new track? If price wars wipe out profits, how can we become the leader? Perhaps it's time to think hard about what the price war has done for us in the long run.

Source: Jack's Afternoon tea by Ye Jingsheng