Think twice before going to war in the business world

FOR those seeking to acquire market share, the race to the bottom price is the most common strategy.

Ross Greenwood talks at the Inner West Small Business Expo at West Ashfield.

THERE are no winners in war, and in business there is rarely a ­winner in a price war. Yet for those seeking to acquire market share the race to the bottom price is the most common strategy.

Sun Tzu’s much-quoted book The Art of War, written in 512BC, says: “The supreme art of war is to subdue the enemy without fighting.” But how can you do that when your cost-conscious customers are walking out the door, ­looking for cheaper, imported goods or headed for the new ­upstart down the street?

Part of the decision-making comes back to the reason you are in business in the first place: to make a reasonable ­return. Therefore, the first step is to analyse the reasons your prices are being undercut. Work out if it is your business that needs reform or whether a competitor is deliberately and aggressively attacking your market share.

If you engage in a price war it will always be the business person with the deepest ­pockets and the most resolve that wins. The question you have to ask yourself, even if you have the resolve and the financial capacity, is whether the prize at the end of the war is worth having? Answer yes, and you can be as aggressive as you like. But if you are ­uncertain that the spoils of the war are worth it, then you have to reassess your whole business model.

­Perhaps ­another niche will be more profitable. The worst thing to do is nothing — that will ­almost inevitably end in ­administration and/or ­bankruptcy.

Think of the high-profile big business wars over the past few years — the supermarket “price-war” and the airline “market-share war”. They are worth analysing, even for smaller businesses.

The supermarket price war was about market share, and specifically about Coles ­seeking to re-establish itself as the retailer of choice for Australian shoppers.

Woolworths, the established leader, engaged in the war ­because it wanted to ­defend its market share. The battle was waged over the most popular everyday shopping items: meat, eggs, milk and so on. But eventually the war petered out. Each group lost their appetite for the fight and their suppliers, who were the collateral ­damage in the war, started to ramp up their own protests at their losses. The ACCC cases are still ­running to this day.

Don’t imagine for a ­moment that the big ­supermarkets have stopped competing. Far from it. Each is keen to grab market share but at a time when food and ­grocery prices are falling each worked out there was too much damage being incurred by the pursuit of silly prices.

The situation in Australian airlines is similar. Qantas grandly told the market that 60 per cent domestic market share was a “line in the sand”. So as rival Virgin put more ­capacity into the skies, simple mathematics meant Qantas had to double its capacity to maintain its non-negotiable 60 per cent share.

But more capacity meant more seats, which meant lower ­prices or empty aircraft — which is taboo in the airline ­industry. The war ended ­earlier this year when Qantas conceded that it was unprofitable to maintain its ambition.

The best strategy is to ­anticipate change. If that means you need to make ­radical decisions, then do it.

The trick with any ­business is to use the resources at your ­disposal to seek and ­exploit opportunities as they arise.

In some ways business owners need as much ­imagination and vision as they do practical business skills.

TOUGH TIMES STAMP THEIR MARK ON FAMILY PRINTERS

IAN Wolf is not sure he wants his two sons to follow him into the printing business, as he ­followed his father.

The second generation printer, Tony Wolf Printing, based in Smeaton Grange in Sydney’s West has prospered since Tony bought a Pedal Platen press in 1961 for £275 and set it up in a packing shed behind the family’s house.

But while Ian can see the business providing for him and his wife Leanne, who is also part of the team, he sees long-term structural problems that make him less confident if his sons take over.

Ian Wolf and his wife Leanne have had to make hard decisions to ensure the business survives / Picture: Ian Svegovic

Specifically, new technology and overseas printers, many in China, mean the premium that was once there for a quality local print job has gone. And in the face of a price war in his industry, Ian had to make strategic and tough decisions to ensure his survival.

The first decision was to not follow the competition down in price every time. “We had to know our customers and not to chase business in the impersonal and bottom dollar technology that’s around today. We can’t compete against ­online printers based in China.

“We had to specialise in personal experience and hope that people leave with a smile.”

He says he also offers customers something they almost never get with offshore printing companies. “If people are not happy we will reprint.”

Not only is the ease of internet printing squeezing Tony Wolf Printing, along with price competition from China, but a consequence of the GST exemption on imported goods worth less than $1000 means many small print jobs coming in from China get another 10 per cent price advantage.

All this meant the business had to be downsized. Three years ago Ian reluctantly cut the staff from 19 to eight and shut down the business’s ­four-colour Roland press.

It’s a far-cry from the early days when the local printer was an integral part of many local operations.

But that goodwill remains just as important today. It’s why Ian can still make it work. As he says: “Without the ­loyalty we would have gone under years ago.”

Originally published as Think twice before going to war in the business world