While western companies shun price wars as wasteful, the Chinese seek them as profi table. Why? In a paper titled The Art of Price War: A Perspective from China, Wharton marketing professor Z. John Zhang and Dongsheng Zhou, a marketing professor at the China Europe International Business School in Shanghai, investigate the problem.

They set it up by asking, ‘Are the Chinese simply lucky survivors when it comes to waging price wars, or do they know something about them that their western counterparts do not?’

The answer they provide starts like this: Over the last ten years, the Chinese have readily waged price wars even against global giants like IBM, Compaq, and HP. These were the three bestselling PC brands in China, but in a matter of some three years, the top fi ve PC brands in China were all local. They had prevailed via price combat.

In their paper, the researchers analyse two price wars that took place in China in the 1990s. The one affected the colour television industry and the other, micro-ovens. Antebellum, in the mid-1990s, China’s colour TV industry was highly fragmented. Foreign brands serviced the top end of the market, while local brands served the lower segment.

The Changhong company wasthe largest and most effi cient colour TV producer in China. Yet, even Changhong’s position was shaky. Part of the problem was the foreign competition, and the other part was industry fragmentation. The company realised that in order to prevail, it needed a corrective strategy. The one it settled on was price war.