Question 3.2. What are the implications of price wars for a company? How should a company try to deal with the threat of a price war? Question 4.3. Why is it important to understand the drivers of...

Question 3.2.
What are the implications of price wars for a company? How should a company try to deal with the threat of a price war?
The price war is represented by one of the severe types of competition within the market resulting in great losses. Most of the companies suffer from losses due to the margins, lack of innovation and consumer equity. It is assumed by the managers that with a decrease in the price, there will be a consequent increase in the demand of the product. However, in most cases, it is observed that with the decrease in the prices of the product, the consequences are- decrease in the margin and increase in the volume of the products (Krämer, Jung, and Burgartz 2016). According to the analysis, it has been observed that the price of war emerged due to four different reasons. The early warning signals in the market. This can be due to the entry of a competitor company or also due to the excess capacity. Secondly, price wars can also emerge from early warnings in the company due to the absence of price leadership, exit cost, or due to the shared market goals. Thirdly, price wars can also occur due to the lack of product differentiation, and lastly, it can also be due to the warning signs from the customers. This occurs due to the loss of brand loyalty. There are times the warning signs can also be an increase in the price sensitivity amongst the consumers.
There are different strategies that the managers can adopt to protect the company from price wars. The companies need to analyze what led to price wars. Even if the competitors have reduced the prices of the product, it is not necessary the company also needs to reduce their prices. Rather, if required, they can sell their product in the wholesale through online retailers. This will allow them to monitor the prices and gain maximum profits. The company needs to carry out creative marketing as well as advertising so that they can win the price wars. Further, the company can add value to the service or the product rather than decreasing the price.
Question 4.3.
Why is it important to understand the drivers of profitability, as measured by the return on invested capital?
In order to understand the drivers of profitability, it is important to identify the strengths and weakness of the company so that they can compare the same with their competitors. This helps the company in determining the financial position of the company. Further, it also helps the company in determining whether they are making profits or deteriorating in the market. The achievements or failures of a company can be an essential factor for the company to provide a satisfactory return on investments to the stakeholders. The organization can gain benefits only when they can maintain their customers and accomplishes adequate benefits. This helps them in gaining value. The driver of profitability is also determined by whether the company is able to develop strategies that help them deriving positive results in the business. Whether it is the cost structure of the company or it is the industry standards, ROIC (return on invested capital) helps in measuring the profitability. This also measures the effectiveness at which the company can use its capital funds for their future investments. The ROIC is usually calculated so that the efficiency of the company can be measured on the basis of the allocated investments. Hence with the ROIC ratio, the company will ensure that the money used by the company also generates an adequate amount of profits. Hence, the company is making a profit with an ROIC...