h. marketing / atlas
  1. Atlas
  2. Economics
  3. Putting It Together
  4. Responding to a Competitor's Price Cut

Part D · Putting It Together

Responding to a Competitor's Price Cut

When a competitor cuts price, a targeted match for customers at risk usually loses least. A blanket match gives margin to customers who were never leaving.

Responding to a Competitor's Price Cut · Illustrated by Hendra Saputra with AI assistanceSelect the illustration to explore it at a larger size.

The idea

With 200,000 units at Rp 35,000 contribution and a cross-price elasticity of 0.5, doing nothing loses Rp 0.7 billion a month, a blanket match loses Rp 2.0 billion, and a targeted match for 40,000 at-risk customers loses Rp 0.4 billion, if the churn model finds the right customers. A blanket match also signals that you will follow every cut.

Use it thoughtfully

  • Check whether the cut is permanent before reacting.
  • Use cross-price elasticity to size the threat.
  • Target the match at customers likely to leave.

An example

ILLUSTRATIVE EXAMPLE: An Indonesian competitor cuts a 10 GB pack 20%. A targeted match for 40,000 at-risk customers loses Rp 0.4 billion a month, against Rp 2.0 billion for a blanket match.

A question to try

How accurate was your churn model the last time you used it to target a match?

A useful framework is a starting point, not a guarantee. Effects vary with the audience, product and situation. Use truthful evidence, respect customer choice, and test the result.

Connect the ideas

Illustration

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