What to do when your competitor lowers their prices

Pricing: 50 per cent offWhen times are tough and customers are hanging on to their money, many small businesses react by discounting heavily to attract cash-strapped customers. But just because a rival has slashed their prices doesn’t mean that you should

Start by considering why a competitor has lowered their prices. Are they new to the market and trying to distinguish themselves by offering the cheapest product or service? Are they launching a new value range because this is what the market wants or have they been forced to slash prices to try and boost dwindling sales? They might not have the same reasons as you for considering a price cut.

Before lowering your prices, you need to be confident that discounting will at least protect your profit ― if not increase it ― and that you are not just giving your margin away in price cuts. In some cases, it might even be more profitable to sell fewer products at a higher, sustained price than to sell more at lower prices.

Should you compete on price?

Reducing your prices can do more harm than good. If you lower them too much, you risk creating the impression that your product is cheaply made as well as priced. The focus of your pricing strategy should be on how you can ensure customers buy from you, instead of someone else, rather than just concentrating on price.

Assess your competitors other activities and see if you can offer something better. You can build your relationship with existing customers by being more personable, attentive, knowledgeable and flexible. Looking after them is vital, as they will be targeted by your competitors.

For example, you could offer customers a free warranty or after-care service to make your product stand out. You need to ensure you have a unique selling point and focus on communicating that to your customers.

The trick for your own growth is to find ways of making your product or service less price sensitive ― that way you keep the focus on value rather than volume.

Discounts and special offers

Sometimes however ― especially price-sensitive industries ― matching your competitors’ prices can be necessary. Weigh up how much of a hit on price you can afford to take without putting your long-term growth in jeopardy.

Start with minor cuts and see if that makes a difference to sales. Lowering your prices should be seen as a short-term tactic to boost cashflow, not a long-term strategic move.

If you must discount, make sure the cuts are communicated as special offers, or one-offs to help loyal customers through difficult times. Remember, you will need to increase prices again in the future, which could be more damaging to your long-term survival than price cuts now.

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