Galanz: The Godfather of Price Wars

GALANZ PRICE WAR

8/10/2013 ABDULZADE Sabuhi, CONSTANT Matthias, CUSPILICI Ubaldo, ROSSI Angelo

Introduction

Price war

Galanz price war

Conclusion

Galanz : a brief history

1976 : Foundation of Galanz, sells duck feathers

1992 : Entering the microwave

household market with Toshiba

1998 : Internationalisation with independant

brands

2001 : Expansion to air conditionner

market

2007 : Expansion continue with

refrigerators and washing machines

Time

Source : Galanz.com

Introduction

Price war

Galanz price war

Conclusion

Galanz : international growth and R&D

R&D : >3% of its annual revenue

$1 billion exports in 2006Sell in more than 200 countries

Introduction

Price war

Galanz price war

Conclusion

Price War

Marketing strategy

Lower price than competitors

HOW ?

OBJECTIVESGain market shares

WHAT ?

Introduction

Price war

Galanz price war

Conclusion

Effets on short and long term

SHORT TERM

Good for consumers Take advantage of

lower prices

LONG TERM

Good for dominant firms Less competitors +

prices increasing

Introduction

Price war

Galanz price war

Conclusion

Reasons for starting a price war

Gain market shares

Market penetration

Wipe out competitors

Introduction

Price war

Galanz price war

Conclusion

Chinese market characteristics

• Price wars occured in each highly

profitable industries

• Low products differentiation

• Extremely fragmentated markets

• Price sensitive customers

Introduction

Price war

Galanz price war

Conclusion

IBEA Analysis

Δq---the breakeven sales increase in percentage;

Δp---the magnitude of a price cut;

cm---the contribution margin in percentage (before the

price cut);

Δc---the reduction in marginal costs in percentage due to

the price cut

Δs is the change in the firm’s market share in percentage ΔQ is the change in the industry demand in percentage

Introduction

Price war

Galanz price war

Conclusion

Why go to war ?

25%

25%

50%

Galanz

Whirlpool-Xianhua

Others

Market shares distribution in the Chinese microwave market in 1996

Very fragmented market (28 companies)

W-X new enter

W-X long decision process

BUT

Introduction

Price war

Galanz price war

Conclusion

How Galanz did his price war

Start: August

1996

Reorganisation of the productions lines: 3 daily shifts and

production line 24/7

AUGUST 1996

Introduction

Price war

Galanz price war

Conclusion

Aims of Galanz price war

Create scale economies

Wipe out competitors

Gain market share

PREDATORY PRICING STRATEGY

Introduction

Price war

Galanz price war

Conclusion

The « Galanz Miracle »

19951996

19971998

19992000

20012002

20030.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

China Market Share

International Market Share

MICROWAVE INDUSTRY

Introduction

Price war

Galanz price war

Conclusion

Results

• Galanz unleashed 5 price wars

• Refined the price war strategy

• Become market leader in just 8 years

• Demonstrated that price war is a viable strategy

«We are a price Godfather»

Introduction

Price war

Galanz price war

Conclusion

Acknowledgements

Thank you all for your attention and patience