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
Marketing ideas for your business in the new year
As the end of the year approaches, it’s time to revisit your marketing strategy to meet current consumer expectations. Forecasting trends is tricky, but what’s clear is that in 2023, customers value privacy, inclusivity, transparency, and overall authenticity, and it’s your job to show them how your business practices meet these ideals. Read on for six steps you take right now to market your business in 2023.
Understand your changing audience
The first thing you need to do is revisit your market. Review your sales and marketing data to make sure you have a realistic grasp on the size, demographics, and character of your target market. Pay close attention to any changes in your ideal customer and use this updated intel to seek out new opportunities. For example, if your business has grown or taken a new direction in recent years, it might be attracting a new audience. Make sure you’re communicating with the most appropriate market segment.
Update your website
Your website is one of your most valuable marketing assets so it’s crucial that it be in good shape. Review your site to make sure all the content is correct and up-to-date. Check to make sure that it loads quickly and displays correctly across desktop, tablet, and mobile platforms. You probably look at your site regularly so consider getting someone with “fresh eyes” to take a look. Ensure that your site works intuitively and offers a seamless customer experience. A site that’s pleasant to use will help you convert new visitors and retain returning ones.
Maximize the potential of social media
With more than 4.7 billion people using social media, your business cannot afford to ignore it. If you’re just starting out on social platforms, now is the time to claim your presence. Set up accounts for your business on top platforms like Instagram, Facebook, and TikTok. Investigate which sites your ideal customers might be using and ensure you’re on them too. Post relevant content, regularly, and make sure that you keep your profiles fresh and current. Try running contests or promotions to boost engagement, and take advantage of the built-in shopping capabilities available on many platforms. You can communicate a lot about your brand values by aligning yourself with other local small businesses through collaborations or sponsorships.
Leverage video content and live streaming
Video content has been a rising trend for the past several years, and is well-suited to businesses who want to increase awareness, improve lead generation and sales, and reduce support calls. Consider how video content might work for your business, keeping in mind that consumers appreciate being entertained. Live streaming is popular and an effective way to connect with your audience in real time. Engage your audience with quality storytelling. Inform them with a clear and concise script. Be creative.
Get interactive with your audience
When was the last time you did an online quiz or game? How about worked with an online calculator or map? Interactive content is engaging, which is why audiences–and marketers–love it. It’s low-cost and can help you increase brand loyalty, generate leads, and drive sales. Think about ways your business can use interactive content to grab your customers’ attention.
Respect consumer privacy
More than ever, consumers are concerned about privacy. Demonstrate respect for your customers’ privacy by compliance with standards like GDPR, by properly acquiring and using user data, and by continually informing your customers of exactly how you’re handling their information.
If you want to stay ahead of your competitors in 2023, now is the time to fine-tune your marketing efforts to communicate your business’ authentic brand and values. Take an inclusive, transparent, privacy-first approach, to reach your target audience.
Marketing