After a leading Dutch supermarket chain drastically cuts prices to counter a loss in market share, will the strategy help regain customers or prove destructive to its long-term position in the market?
After a leading Dutch supermarket chain drastically cuts prices to counter a loss in market share, will the strategy help regain customers or prove destructive to its long-term position in the market?
In October 2003, leading Dutch supermarket chain Albert Heijn slashed prices up to 30 on more than 1,000 items to counter a loss in market share caused by consumer perception of high prices. AH continued the strategy for the ensuing three years, forcing competing supermarkets to match the markdowns or risk customer defections. Game theory adherents and analysts questioned the strategy, noting price wars often jeopardize profits of both individual companies and their industries. In this two-part case students analyze the risks and benefits of pursing a price-cutting strategy, considering profit margins, market-share data, and select financial information for AH and its competitors.
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