Friday, 31st May 2019 | Sales,Marketing
What to do When Competitors Undercut Your Prices
When competitors undercut your prices, it’s tempting to engage in a price war. Here are some reasons why that strategy might backfire, and a look at some alternate battle methods.
What if a new player enters the market and starts charging a fraction of your price? When competitors undercut industry prices, it’s impossible to know what the impact on your business will be. But if your knee-jerk reaction is to lower your price, keep reading!
Before you engage in a battle with low-ballers, follow the steps below to understand why competitors undercut your prices, and devise a plan for combat.
Understanding The Pros and Cons of Setting Prices Low
Pricing is part of marketing strategy. It is something you establish intentionally. In order to understand why a company would go with a low-price strategy, it’s helpful to understand the alternatives. Here are the four basic pricing strategies:
Economy: Ideal for low price, low-quality products and services where the goal is to profit by selling a high volume.
Premium: In premium pricing, a high-quality product/service is set at a high price point. Sales volume will be lower, but profit margin higher. A good example is a luxury brand where the product or service is sold at a premium thanks in part to perceived value.
Skimming: Skimming refers to selling a low- to mid-quality product/service for a high price. This may seem counterintuitive because over time the brand’s credibility will suffer and sales will decline. The goal of a skimming strategy is to have a burst of initial sales.
Penetration: When a high-quality product/service is priced low, it’s referred to as penetration pricing. The idea is to gain market share by tempting people. Over time, the price would be raised. It’s a good strategy for a new entrant to a saturated market where you want someone to try your brand in the hope that they’ll remain loyal to you after you raise the price.
Hopefully, now it’s more obvious why a company would adopt a low-price strategy and your knee-jerk reaction to compete on price will be lessened. While buyers may flock to a business when prices drop below the competition, this won’t necessarily make them the victor. In some instances, a flurry of sales means quality cannot be maintained, and the reputation will suffer. The perception of the brand could also take a hit (a luxury brand competing on price is an oxymoron).
Before you engage in battle, be sure to revisit your marketing—and specifically your pricing—strategy (or establish if you don’t have one). There are many ways other than discounting to attract and retain customers. Here are four ways to do this:
- Highlight the value: Instead of showcasing prices, bring your product or service’s value back into the spotlight to edge out your competitors. Focus on reframing your marketing and communications tactics to divert any attention from costs to value propositions instead. You could even go so far as to publish a comparison chart on your website to explicitly show how your offerings stack up in the marketplace.
- Focus on the customer experience: Nothing beats exceptional customer service. Instead of reacting to predatory pricing, evaluate your customer service efforts by taking strides to improve every touch point and ensuring your customers’ journey is optimized end to end. More so than pricing, customers are likely to share stories about brands that go the extra mile.
- Offer free resources: To build added trust in your brand, put more effort into content creation when competitors undercut your prices. By offering tip sheets, helpful videos, blogs, infographics, and other resources – for free – on your website and social channels, customers will come to view your brand as an authoritative one.
- Modify your offering: If your competitors are all offering identical products and services, you can set yourself apart with a new type of inventory. Even the slightest variation can make you more visible in the marketplace by appealing to consumers who are looking for variety or stand-out products and services. You can even consider bundling your offerings for a slight discount without directly undercutting any competitors, but adding value and convenience for buyers.
If you focus on pricing alone when competitors undercut your prices, it’s likely that you’ll never win the undercutting war. Instead, differentiate using one or more of the tactics above. It is more effective and far less risky to stand above the competition by highlighting your business’s uniqueness and addressing customers’ pain points.
Read Also
5 ideas for stimulating sales through this pandemic winter
For Canadian small business owners, the approach of winter without a COVID vaccine holds some uncertainty. Businesses that have managed to adapt and pivot during the first stages of the pandemic face another slow season—this is especially true for those in areas retreating back into stage 2 restrictions. With more time at home, people appear to be spending more time on social media, particularly on YouTube, Instagram, and LinkedIn. (Facebook has always had strong usage rates.) Whether it’s to connect with friends and family virtually, to search for jobs, or to enjoy online diversions, it’s clear Canadians are taking to social media. This is an opportunity for Canadian small business owners. Here are 5 fresh ideas to connect with buyers, increase awareness of the business and products/services, and deepen loyalty using social media.
#1. Make ‘em laugh
Canadians are under a tremendous amount of pressure. If you can engage your followers in a fun or funny way, you’ll have a good chance of not only keeping their attention but also leaving them with a positive feeling about your company. Skip cold corporate speak if favour of messaging with a light and relatable tone. Puns and in-jokes are great but make sure your humour is relatable and uncontroversial.
#2. Run a contest
Who doesn’t like the chance to win something? Engage your audience with a contest like this one by SAOR Studio that’s helping its members to stick to their exercise regime with a workout bingo. The game is proving to be almost as much fun as a night out at the bingo hall—members are even posting their progress on social media. The big prize? Complete a line and receive 15% off on gym merchandise—a win-win.
3. Use livestreams
Nothing stops the runway for Canadian fashion brand Miik. Using Instagram and Facebook Live, the Toronto-based clothier has taken the catwalk digital and now customers can tune in for virtual viewings and Q&As with the owners. Borrow this strategy to host industry “shows'' or to launch new products.
4. Post often
Even if you’re open for foot traffic, people are increasingly hesitant to be out and about, so posting regularly is more important than ever. Get creative with your content so you don’t give your customers social media fatigue. Consider the Halifax Thunderbirds. While this Canadian lacrosse team is side-lined, they’re keeping their audience entertained and engaged with squad news, fan pictures, and anecdotes from past matches.
The National Ballet of Canada is taking a similar tack by sharing behind-the-scenes posts of dancers in their homes and offering free, live virtual ballet classes and performances. The same strategy that works for athletes and performers can build relationships with retailers. Edmonton-based New Classics uses their Instagram to showcase their ethically crafted and environmentally conscious slow fashion items so customers can window shop from their couch before ordering online.
5. Be inspiring
Tone is everything and these days Canadians are looking for brands that make them feel good. Search out and post thoughtful and inspirational (but not saccharine) statements and ideas that show off your brand voice. Take for example, Mail Chimp, the marketing platform. They’ve peppered their feed with lovely, simple animations with positive, encouraging phrases like "It feels good to put something back into the world" and "Making the most of it sometimes requires a little something extra." Choose statements that are in line with your brand voice and couch them in your own design.
Canadian small businesses needn’t fear the coming cold months. With the right social media strategy and outreach, they can meet their customers where they are—in their comfy clothes, at home.
Marketing