Selling products at a loss to gain market share is a strategy we see happening daily but rarely notice. It is a business strategy that both large corporations and startups adopt. It is a strategy that companies adopt when introducing a new product or looking to reduce competition. In some cases, it is a predatory tactic. Samver in Germany used the tactic to bring a new Airbnb in Germany down to its knees but failed in the face of resolve and counter strategy adopted by the young Airbnb founders.
I regard this as a predatory tactic that regulation should seek to bring under control. Although, there are laws in most major jurisdictions that penalize companies for uncompetitive and monopolistic practices. The challenge in most cases is that it is difficult to prove that a product or service is being sold at a loss.
Smart companies use this tactic sparingly to weed out the competition or prevent a competitor gain market share. Once the objective is achieved, companies go back to normal pricing. Often such practices are labeled sales promotion. You would have noticed that new products are usually offered at attractive prices. Such sales promotion losses are documented in the company’s books as expenses for promotion. Regulators accept the practice.
Once the business objective of either successfully introducing a new product or an attempt to enhance the sales of a struggling product or service achieves its aim, the company returns to normal pricing.
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