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Managing Price in a Competitive Market

(Other Class Offerings)

This one-day course provides a framework for making pricing decisions in competitive markets. It combines game theoretic approaches with management science tools and the systematic use of qualitative judgment to develop a process for pricing in competitive environments. It introduces an approach for formulating hypotheses about a competitor's pricing processes and testing them against current and historical pricing behavior. It also presents several alternative approaches to pricing in a competitive environment, including: "proactive pricing" by being an effective price leader, "reactive pricing" by responding quickly and decisively to the prices of one or more competitors, and "transformative pricing" in which price is used in conjunction with other marketing tools to encourage competitors to change the way they set prices.


  • Modeling a competitive market
    • The importance of understanding competitive interactions
    • Insights from game theory
    • How myopic thinking can lead to pricing policies that destroy profits
  • Competitor empathy: how understanding your competitor can help in predicting its actions and reactions
  • The ORTHO approach to forming hypotheses about competitive pricing decision processes
    • Objectives:
    • Rules
    • Timing
    • Hypotheses
    • Observation
  • Anticipative pricing: pricing to optimize given expected competitive responses
    • Developing reaction functions
    • The benefits of price leadership
    • Being an effective price leader
  • Reactive pricing: pricing to optimize given competitive actions
    • The importance of being prepared to respond quickly
    • The pros and cons of a "Guaranteed low price" policy
    • Being an effective follower
  • Transformative pricing: pricing to change how competitors set their prices
    • Using price signaling to send a message to competitors
    • Using price to deter uncooperative behavior
  • Fighting a price war
    • Direct price responses
    • Selective or complex price responses
    • Non-price responses
    • When it is best not respond to competitive price cuts

Those interested finding about more on this topic may wish to read The Harvard Business Review article: "How to Fight a Price War" by Akshay Rao, Mark Bergen, and Scott Davis (SMD Principal) (Link to HBS reference)

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