Competitive Strategy Chapter 2 Soft Cooperative Commitment

Reputation building is a form of cooperative commitment. ( With soft commitment, companies try to build a reputation as a fair and cooperative player – in the hope that the competitors treat the company in a fair and cooperative way.)
Implementing a most favoured customer clause is a form of cooperative commitment: With such a clause you cannot easily reduce prices in a specific market segment or region in order to fight for market share with a competitor. Once you reduce prices in a specific market segment or region, you have to offer the same price to every other customer and refund the price difference to those who have bought your product earlier on. This is they price wars become very costly and hence less likely. Because the other market participants do no suffer from implementing such a  clause. It is a soft rather than an aggressive commitment.
A self binding commitment is another form of cooperative commitment: You make a binding decision such as particular investment that eliminates those moves/actions which would lead to fierce competition. The other market participants do no suffer from this decision.
The most favored customer clause says that every customer gets the same price. If the company decreases its price, customers who bought the product previously at a higher price get refunded. Hence, if the company decreases its price, e.g. to fight back a certain group of customers with heavy price cuts, the company has to reduce its price also for all the other customers and refund previous buyers. This makes price cuts very expensive and reduces the likelihood of a price war.

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