The construction machinery industry, represented by excavators, has been plagued by this issue for decades. The Chinese construction machinery industry has fluctuated for decades, always revolving around the word “price.”
Firstly, it is necessary to clarify the core of the “price war.” The essence of a price war is due to oversupply, huge production volumes, and relatively limited market demand. The price surge in March 2020 was partly due to intensive projects supporting sales growth and partly due to the overseas spread of the epidemic, resulting in shortages of construction machinery parts and rising costs. Currently, there are hundreds of excavator manufacturers in China, with only about thirty mainstream ones, and the market share of the remaining companies is less than 1%. All companies hope to grab more market share through pricing to become stronger. Another reason for the price war is that large factories can maintain gross profits at 20-30% and have the ability to participate in price wars.
Secondly, it is important to consider the impact of the “price war” on the industry. The positive effects of a price war include forcing companies to optimize costs and examine their cost structure at prices acceptable to the market. The entire industrial sector is undergoing reform, shifting from the previous pricing strategy of “cost + profit” to market pricing, driving manufacturers to reform their supply chains. Another positive impact is that some companies, to avoid excessive participation in price wars, will provide value-added services to customers, focus more on addressing customer pain points, solve actual problems for customers, engage in joint research and development, and add configurations. This is the treasure trove on which many small businesses rely for survival and a reason why the concentration of the excavator market is difficult to increase. The negative impact mainly lies in profits, affecting research and development and the overall technological progress of the industry.
Lastly, how can we avoid “price wars” in the future? Starting from customer needs, help customers solve real problems. Invest in technology, continuously build up technological reserves, with Sany spending around 4% of its annual research and development expenses to maintain a technological advantage and continuously develop new products. Collaborate with customers on research and development, share market and technology trends such as electrification, digitization, remote control, etc. In production, carefully select the supply chain to ensure product quality and performance, provide enough survival space for the supply chain. In terms of sales, choose the right products and markets, position different markets based on your product portfolio. For example, if the real estate market customers are declining, shift to infrastructure customers; if the domestic market is declining, switch to overseas markets; if small excavator products are on the rise, focus resources on small excavators, and so on.
The goal of participating in a price war is to achieve business growth, creating a sustainable cycle from sales to production. If all aspects of competition do not achieve this goal, it is a misguided behavior. Looking beyond price competition, factors such as product quality, performance, after-sales service reliability, and customer satisfaction are rarely mentioned. These factors are precisely what can serve as the basic guarantee for avoiding price wars.