| In our country today, the competition among enterprises is becoming ever more intense as they enter into a market economy. According to M．E．Porter, a well-known American scholar on strategic management, in any industry and trade, there exists five basic competitive forces, namely, potential new comers, substations, buyers, suppliers and confrontation between existing competitors. The condition and overall intensity of these five basic competitive forces will trigger changes in the economic structure of the industry, thus determining the intensity of the internal competition of the industry. Based on this theory, M．E．Porter put forward three basic competition strategies in his "Competitive Strategy" published in 1980:low-cost leader strategy, product difference strategy and emphatic concentration strategy.To a large extent, enterprise competition strategies are reflected by their pricing decisions. Market demand and enterprise cost respectively determine the up and down limits of product prices. To arrive at an appropriate price decision, enterprises first and foremost need to measure demand. Under normal conditions, demand and price move in opposite directions, that is, the higher the price, the lower the demand, and vice versa.Another factor that must be considered when enterprises decide on prices is cost. There has to be a correct estimation of cost. Any enterprise wishes that the prices it decides on will cover the cost of producing, distributing and selling its products as well as obtain reasonable compensation for the effort and risk it has undertaken. Currently, most enterprises in China adopt cost-weighting and object price methods, which are cost-based pricing methods. Both of these two methods, however, are theoretically defective. No pricing methods can arrive at the optimal price without taking into account current demand, expected value and competition.Enterprise pricing decisions are usually affected by industrial constraints, depending on market competition conditions. Economists classify four types of different market structures: complete competitive market, complete monopoly market, monopoly competitive market and oligarch competitive market. After the market transformations over the last two or three decades, most industries in China have taken up the following salient characteristics:1. Most industries have entered into a buyer's market and a surplus economy has emerged.2. Most markets find themselves in competitive or monopoly competitive conditions.3. During the process of market transformation, many industries still enjoy ample profit space, which provides motivation for newcomers to enter and leads to intensified internal competition within industries. 4. Government protection for monopoly industries is weakening while international competition is setting in.Against the background of the above-mentioned market transformations, cost-based competition has become the main theme in competition between enterprises in many industries in China since the beginning of 1990's. One typical example of this period is the intensifying price-cutting confrontation taking place in China's house appliances industry. In a competitive or monopoly competitive market, price is still a deciding factor, which determines enterprises' market share and profit margins. Among numerous Chinese enterprises, there is no lack of classic examples of great success resulting from price-cutting strategies, such as Changhong during the early color TV period and, more significantly, Glanz in microwave oven industry. In the latter case, an offensive pricing strategy based on scale economy and experience curve has resulted in a secure leading position in the microwave oven market with an absolute control of the market.As the world enters the 21st century, Chinese enterprises have ushered in a new economic era. The economic landscape today is formed by two powerful forces: technology and globalization. Technology's epoch-making characteristic is digitization. At the same time, techn...
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