My company essentially invented a certain product category many years ago and for about 3 years we were the only company offering this digital product. Because we were the first and only, the we grew fast and quickly this product became our number one seller. It essentially funded us as we were bootstrapped. About 3 years into it a larger competitor came into the market and undercut us by offering the same product at around 50% to 90% less than we were offering it. The product is digital, so pricing is rather arbitrary, but the prices we were originally selling it for were very reasonable and most would agree that the competitor's pricing, while cheap, greatly devalues the product itself. (A common theme with this particular company.) Every since then, we have been hit hard and have lost a huge amount of market share to this competitor. From the vendors that sell this product through my company I hear 2 sides: 1. We should not lower our prices to be like them. Instead we should raise quality and keep the prices the same. (While this sounds ok, the idea of raising quality isn't really applicable in this situation. While we have some control over it, we don't have that much control.) 2. Other say we need to lower prices to compete. In fact, there are some vendors that sell the same product through our company at a higher price and sell the same product through the other company at the much lower price. With our company, we allow the vendors to set their own prices, but the other company does not. They force all vendors to follow their lower pricing points. In the last year or so, the other company has actually crept up its pricing to be closer to ours. So, wondering... should we drop our prices to match or beat theirs? Or, should we keep them the same? Thoughts?
When a competitor undercuts your company’s pricing structure by offering products and services at a lower cost, it is often your sales team that feels the pressure. It can be difficult to gauge the impact that a competitor’s lower pricing may have on your company’s customer base, but formulating a proper response first requires identifying the potential threat as soon as possible. In some cases, business leaders may be too focused on traditional competitors to recognize the emergence of a new, low-cost rival. Even if you manage to run your competitor out of business, chances are you may not have much of a business left when the battle is over. Unless you are certain that your company can emerge relatively unscathed, it is crucial to avoid a price war. In fact, lowering prices at all to compete with low-cost competitors and price undercutting may not be the best solution to the problem, as establishing a lower-price formula tends to erode profits in the long-term. To overcome a low-cost competitor without sacrificing profits, try shifting customer perceptions about your product away from money and onto value.
A 2018 Inc. article advises companies to consider what your customers care about most before making changes and updates to your business. You learn such things by building strong relationships with your customers and investing in their needs. Differentiating between types of customers and learning which market segments your firm can afford to lose is another valuable, short-term strategy for dealing with a competitor’s undercut price. Developing a plan for what to do when a competitor undercuts you can be hugely helpful in saving both time and money in the long-term.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
Answered 3 years ago
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