Reducing the price has the effect of reducing the product's value to the would-be purchaser, Warner says, adding that when you must discount, you should do so with caution. On the other hand, sometimes cutting prices is smart, especially if they're too high to start with. Price structures must remain flexible. When a new competitor uses price to gain a foothold in the marketplace, established companies should react quickly with their own reductions. Tylenol DID, and the upstart Datril never got more than a 1-percent market share.
Low prices can work as a proprietary competitive advantage.
Southwest Airlines, the low-fare airline, limits its expenses in numerous ways, including having only one type of plane in its fleet. The U.S. Postal Service's two-day delivery service, lacking fancy tracking systems and other expenses, competes successfully with UPS and FedEx. Using price, or consumer perceptions of price, to imply high quality.