How to combat price wars?

[cappyjon431]

We have three dive shops in our relatively small Caribbean town. We have all coexisted peacefully for years and often help each other out by loaning PADI books or dive gear if necessary. I even temporarily loaned one of my boats to one of my competitors when two of his sunk in a storm.

A couple of years ago (when gas was $5.50/gallon here) all three shop owners met and agreed to raise our prices for a two tank dive from $50 to $60. We agreed that we could charge whatever we wanted for courses. OW courses varied from $225 (we were the cheapest) to $235 and $265 for my competitors. $225 is dirt cheap for OW classes, but in our market (which caters to backpackers travelling on low budgets) it seemed to work well. What we lost due to our lower prices was made up in volume, as we were certifying lots of divers.

I recently learned that one of my competitors is now charging $40 for a two tank dive (even though gas prices have edged up over $4/gallon). I am not too concerned about this because that shop only goes to dive sites that are very close and we can offer much better diving by going to more distant spots.

My other competitor just lowered his OW class price to $175. I have no alternative but to match his price, but to be honest, we can't be profitable at this price. I am assuming he is using "used" PADI books for this price (a violation of PADI standards, which I will not do), but I can't be certain. It would seem that these lowering of prices is costing all of us money.

Has anyone had any experience dealing with these types of issues? What is the best way to handle this? I am on friendly terms with both my competitors (at least for the time being), but I seem to be in the middle of this nonsense. One shop lowered his course prices in response to the other shop lowering his 2-tank dive trips. The other shop claims to have lowered their prices for 2-tank dives in response to our lower prices for courses.

Maybe this post is better suited for the "Whine and Cheese" forum, but I wanted to get some feedback from other shop owners.

 

[Diver0001]

The trick is to build up enough reserves in the good times that when the price wars start you can invest that in the opportunity to take your competitors by the neck and squeeze the life out of them.

In my day job we talk in terms like this. I work for a big company that keeps ample cash reserves on hand to "invest" in "necking" the competition when they're least expecting it.

The greatest moment in business is when your competitor phones you to beg you to be reasonable and you can say, "sorry, I'm not willing to do that!" The "cracking" sound it makes when they hear you say that is the gong of future profits ringing in the distance.

Bad is, of course, if you're on the receiving end.

R..

 

[TechBlue]

Price wars are generally a no win situation. If you are running a tight ship like most dive ops I know I can't imagine how you would build up enough cash reserves so that you can "bury" the competition in a season price war.

Is business that bad that your competition has to lower prices so drastically? If you are still able to talk to the other two shops why not have a roundtable meeting and hammer out the details, I would guess that all of your operating costs have to be pretty close so you must know what margins everybody is dealing with and what you need to keep your doors open.

 

[Trace Malinowski]

When we hear about Panama, we think of a canal and hats, not necessarily diving. The first dive in Panama that I read about as a kid was a US Navy diver being attacked and killed by a shark immediately after striding into the water to check a fouled propeller.

Keeping in mind that you are competing with the world for tourist and travel dollars, rather than fight one another in your country, Panama diving and your competitors might be best served by following the Cayman and Bahamas models and forming the Panama Dive Retailers Association or some such cooperative effort.

Work together to attract diving dollars and help one another prosper rather than fail. Growing up, I had 6 dive centers around me that were constantly in a mean-spirited war in the Pocono Mountains and the city of Scranton. Only 2 of these are left. One is run out of a garage and the other is involved in selling other sports. The two most professionally run and the busiest collapsed. One had an indoor pool on site.

They failed to work together to promote the local diving economy. The two most professional got into a war in which it finally came down to teaching police and public safety divers for free hoping to make up educational losses through equipment. They should have realized that they were competing with other seasonal sports for dollars and worked together to promote and grow diving.

You can either work together to prosper or fight one another in a way where everyone loses.

 

[cappyjon431]

Things finally boiled over this week. Sick of one competitor charging $40 for a two tank dive and the other charging $175 for OW classes, I had an inexpensive banner printed up that I put out on the street advertising both $40 2 tank trips, $25 one tank trips, and $175 OW courses. Business surged, but it wasn't two days before each of my competitors called me and asked for a "sit-down" to end the price war. Everyone agreed to raise our prices back to our original levels.

Now I just have to closely monitor my competitors to make sure they are not "secretly" discounting their trips/courses. I told both of them that the minute I hear someone come into the shop asking if I can meet the other shops' discounted prices, my banner was going back up and I was not going to take it down again.

 

[Diver0001]

Well done!

R..