The first thing to do is to look at what your competitors are doing with regard to customer service and experience. Once you've implemented all the operational changes required to reposition your product in the marketplace, it's time to tell the world why your firm offers superior value. Once you’ve done the research and you decide a price reduction is needed, try these short-term price reduction tactics. Have a look at your messaging across all your marketing channels, your website and landing pages: Are you positioning yourself, for example, as the cheapest or the best? We all know this kind of price negotiation: You’ve put yourself in an enviable position as a salesperson.Over the course of several weeks or months you’ve worked hard to qualify a prospect, familiarize him with your product and build a relationship.. If you make things easy for customers, your rival could make things even easier. Since there was little we could do about the emotional issues, the team decided to attack the Linux value proposition. You need a strategy for beating the low-ballers. When customers prefer the lower priced of two items, it's usually because they believe the cheaper item is a better value. If this is possible in your niche market, this is a good way of lowering prices for competing market segments, while keeping overall prices the same. Also, seeing how competitors and thought leaders evolve their offer presentation can give you good ideas to emulate or can spark new ways to differentiate your product. If it’s the latter, you are less likely to be affected by your competitor’s price reduction. Do they offer 24-hour support when you don’t? In such cases, if sales drop considerably, it’s better to drop prices to compete at least short-term to avoid stock loss. It’s no secret that small businesses play a vital role in the US economy. Establish effective tactical solutions. Here are 7 Reasons Why, How to Take Amazing Product Photos With Your Smartphone, 31 Dropshipping Resources to Grow Your Business Faster, SEO Tips to Conquer Google: 9 Mistakes and DIY Solutions, Start a Successful Online Clothing Business in 7 Steps, 60 Best-Selling Products Online to Sell in 2019, AliExpress Survival Guide: Finding the Right Supplier, you don’t have to be a Photoshop guru to do it. (Mostly through frequent coupons and specials. Remember, the customer buys based on their perception. Powered and implemented by FactSet. Find out which competitors are offering similar or identical products and services and the prices charged. This could result in all parties involved in the price war comes out with the same market share, but with lower prices. Log onto their sites, send them emails and look at their FAQs. Start Marketing Your Products Beyond Price. You can influence their perception by labeling your competition. Your biggest competitor has lowered their prices, you are concerned about sales and you’re tempted to reduce your prices to match theirs… But responding to price wars could do more harm to your long-term sales strategies than good. Fourth pair is highest: embrace an "ownership of results" strategy. Enhancing your customer service and altering policy is an effective way to one-up your competitors despite any price drops they may introduce. Offering discounts and/or special offers is a good place to start to test lower prices on your market. Reasons for a decrease in price include: Response to Competitor’s Changes: If a competitor significantly lowers their price, your firm may need to do the same to remain competitive. Th… This tactic doesn’t just make for a bad customer experience, but causes mistrust in your brand and/or product. Companies often compete with one another in terms of market share—that is, how big of a slice of a particular market a company's sales represent. The following limitations apply: The item must be identical, (i.e., size, model, quantity, brand, color) According to Michael Treacy, coauthor of the classic bestseller The Discipline of Market Leaders, there are four market strategies that accomplish this: Think of product value as a grid. However, there’s the risk of diminishing profit margin and you might not be able to … In fact I do not even consider them a competitor for we do not serve in the same league. News provided by The Associated Press. Save my name, email, and website in this browser for the next time I comment. If not, you may want to consider revamping your descriptions like the above example and refreshing your product images. If you must discount, make sure the cuts are communicated as special offers, or one-offs to help loyal customers through difficult times. Instead of focusing on the affordability of such a type of e-reader, they focus on the value of the product: its weight, battery life, and overall comfort. They will develop a perception of you and your competition one way or another. They are a big company with multiple products where they can drastically reduce prices in one area, while still reaping profits in another. If this other product works just as well for you, then you probably … ), Hassle-free experience (Pioneered long-term service warrantees. As you can see, according to their stats, a whopping 56% of these checkout dropouts give ‘unexpected costs’ as their reason. Check out our Product Photography Tips and Tricks post. Here are some tips to help you improve your customer service and customer experience. When she's not researching the next content trend or creating informative small business content, she's an avid beachgoer, coffee shop junkie and hangs out on LinkedIn. Are you highlighting these benefits and features in the way you describe and display your products on your online store? Market data provided by ICE Data Services. 10 Ways to Deal When Your Competitors Lower Their Prices. People are much more inclined to post a quick comment on your Facebook page and it also gives you the opportunity to engage more with your customers. The rating your customer chooses classifies them into three main categories: detractors, passives or promoters. After completing the audit above, the next step is to … For example, a firm can decide to employ an aggressive pricing policy with a mix of competitive pricing and penetration pricing by setting the price 10% lower than its competitors. Any business, big or small, ca… We will also provide you, in the event where you are forced to engage in a price war, with better short-term price dropping practices. Meaning that as they lower their prices, the cost per unit is lowered and therefore their profits remain the same. Not to mention that trust badges are proven to boost sales as they effectively increase conversion rates. There are a host of free survey tools such as Google Forms and Survey Monkey, that allow you to get valuable data into not only what your customers are thinking, but the market in general. One of the oldest tricks in the books is for a customer to demand that sellers justify their prices. So the first thing to do is to find out exactly why your competitor is dropping their prices. When two or more products which are similar in characteristics and more or less are substitutes of each other, then the purchasingdecision of customer rests solely on the price of the product. If you're only better than your competition in one dimension, you run the risk that your competition will focus on that dimension to leapfrog over you. Copyright © 2021 CBS Interactive Inc. All rights reserved. Compared to your competitors, is there a way you can get it into customers' hands more quickly and with less hassle? If their product will go to waste if not sold or used, such as perishable food products or Airbnb rooms. The left axis defines what you sell: Does your firm offer stand-alone products, or do you specialize in offering an ongoing set of services? As a result, we would not be able to choose products of better quality and lower prices. After completing the audit above, the next step is to adjust your product marketing and content away from the concept of affordability. There are a few reasons why your competitor has dropped their prices. Reducing price to match the competitor's price, because (1) its costs fall with volume, (2) it would lose market share in a price-sensitive market, and (3) it would be hard to rebuild market share once it is lost, even though this will cut short-term profits. Why? 2. Read their press releases, blogs and marketing to find out what drives their price … This may be less expensive than cutting price and operating at a lower margin. Business giant Amazon is doing just that with its new Kindle Oasis E-reader, which is selling for about $200 more than its own entry-level Kindle and other price-competitive e-readers. Is there a clever way to manufacture it for less, so that your retail price will remain lower than that of the competitor's crappy imitation? This enables you to assess if your prices are right for the market and if your products are being merchandised effectively to maximise sales. Since this was a direct assault on Microsoft's business model, we build a team of experienced market research and messaging people, including a guy who had been one of Bill Clinton's advisors during the Lewinsky scandal. Nicole is a content writer at StoreYa with over sixteen years experience and flair for storytelling. The basic problem with trying to justify your prices is that the customer does not want you to make any more money when your costs go up. (For example, if "taking ownership of results" ranked second, you'd need to beef up your sales and support teams.). A games console company reduces the price of their console over 5 years, charging a premium at launch and lowest price near the end of its life cycle. So what's the best way to proceed? © 2007 CBS Interactive Inc. All Rights Reserved. NPS is centered around one basic question: “How likely are you to recommend our organization to a friend or colleague?”. Your email address will not be published. For instance, small businesses that do not have any employees average just $44,000 a year in annual revenue with two-thirds of these companies earning less than $25,000 per year. Walmart.com is committed to providing low prices every day, on everything. Does your customer service and user experience compete? Greater competition among sellers results in a lower product market price. Or more commonly, they could be starting a price war to increase their market share. It could be temporary due to them trying to get rid of excess stock. … Even loyal customers may turn to a competitor if the price is low enough, so you need to give people a reason to pay more. The highest numbered pair indicates your core competency.Match that with the strategy you should embrace, below. An easy way to get these testimonials is to ensure that your Facebook page has been set to allow for visitor comments. Updated on: August 2, 2010 / 3:04 PM Therefore you can expect that my service/ product is going to be far superior to the competitor who quoted a lower price. That's the good news. Ultimately avoiding getting into a price war with competitors which more often than not results in losses for everyone involved, including the instigator. For example, if your costs go up $2, the customer thinks you should raise your prices $2. The competitor lowers prices. That means adopting a communications strategy that matches your market strategy, as follows: Ryan Kubacki, a former Microsoft executive who is now president of Holden International, explains how Microsoft reacted when Linux, the open-source operating system, first came on the market: "When I was Microsoft's business marketing officer for the U.S. central region, [CEO Steve] Ballmer drafted me to work on the company's Linux strategy. / MoneyWatch. By emphasizing value rather than price, we were able to blunt the Linux narrative and keep it from becoming an overwhelming threat to Microsoft's enterprise strategy.". The changes required may not be for the faint of heart, but they're better than the alternatives. If you are looking for some more ideas to grow overall loyalty in order for you to survive your next price war comfortably, see our tops Ways to Boost Customer loyalty post. Young Entrepreneur Council. Setting the price of a product is often the biggest determinant for the success or failure of a product. Comment below. Warning: if no pair adds up to more than 6, your company may not be a viable competitor. In this blog, we will outline the steps you need to take if your competitor has reduced their price as well as offer workable alternatives to entering into a costly price war. Because more often than not this could damage the whole market as everyone lowers prices in response. That's great, but do you really have what it takes to pulverize the competition? If you can increase the volume without affecting the production cost to a great extent, then this might be a good strategy for you. However, revenue for small businesses can be scarce. In today’s market, regardless of which niche your business falls into, there is no denying that customer service and customer experience can make or break your business. Before reducing your prices to match theirs, there are a lot of considerations to take into account when deciding if you are going to respond or to ignore. Example 2: Your product is the same as everyone else's, but you can sell it for lots less. Why? Just as you are responding to your competitor's pricing moves, they will do the same in response to you. No! You can do this by talking to your customers, doing market research, calculating your customer loyalty and auditing your marketing strategies. Pick up the phone or send out an email and talk to your customers. You estimate that there’s a 90% chance you’ll close the sale during your next conversation. Why would you let fellows in the other end zone determine the baseline for your price… You’ll end up either keeping the same price forever, because competitor A hasn’t changed her price or you’ll simply raise or lower prices in response to trigger happy competitors. However, before you indefinitely decide to drop your prices first ask yourself if your customers even know about your competitors’ prices? Companies may also need to consider reducing the prices of their products. There are three main reasons why businesses ultimately decide to enter the ring in a price war. Required fields are marked *. If you've got the best product, the competition may figure out how to make a better one. This can include student prices, senior discounts or coupons aimed at specific customers based on VIP status or their location. Looking for more product photo tips? The challenge in executing a secondary strategy is that the four basic market strategies are, to a certain extent, mutually exclusive. Let me explain: From small business to large companies, competitors use price drops as a fast way to grow their market shares in a competitive market. Figure out what you would do to execute a marketing strategy if that pair had been your highest total. One competitor will lower its price, then others will lower their prices to match. Promoters are your loyal customers who trust and recommend your brand. One of the most efficient ways to do this is by using tools like StoreYa’s Coupon Pop, which enable you to offer discounts as a short-term way to boost sales, without changing your pricing strategy. Hint: Lowering your prices is not the answer. Whatever you decide, as long as you keep your eye on the prize – a long-term increase in sales – you can’t go wrong. Because a customer is more likely to believe other customers. Price segmentation is a way of charging customers differently for products and services, depending on which segment they are in. If several companies jointly forced certain companies offering products and services at lower prices out of the market, we would lose the opportunity to choose a product for a lower price or better service. Better products typically cost more to make. Every customer a competitor serves is an opportunity lost for you. This could be that the online stores in question never disclosed hidden costs in an attempt to keep their displayed marketing prices lower to compete with their competitor’s prices. Legal Statement. Information regarding the topic can be gathered either through cost information or any available financial reports. 5 Reasons Why Your Prices SHOULD Be Higher Than Your Competitors Written by Sean McPheat | I met a salesperson on one of our programmes who was really upset that his company had raised his product’s prices by over 3%, and hadn’t given him an explanation as to why. Checkout is one of the most important functions on your websites. Expand the assortment in your online store, monitoring if there are any new products in your competitors’ assortments. Pretend to be an objective outside observer and rate the following aspects of your company's operations: Total each pair. Testimonials from happy customers on your site and social media pages is a great way to show potential customers that you are offering a quality product they can rely on. The top axis is about your core value proposition: Does your offering compete largely on the basis of how much it costs, or does it offer features that make it unique? Survey Monkey offers a survey template that incorporates Net Promoter Score (NPS), a survey system specially designed to calculate how loyal your customers are. Let's consider this logically. When customers … Luckily, it is possible to beat a lower-priced competitor without crippling your profits. Passives are those customers who are neutral or indifferent about your business. If you are new to a market – or with a new product to sell, it's a common strategy to start with a low introductory price to get yourself known. We provided reams of data suggesting that Linux was more difficult to integrate, more difficult to manage, and more difficult to support — all of which ends up costing more money than would be saved by avoiding a license fee. How quickly are they responding? If a product has network effects - if it becomes more valuable the more people use it - then a low price helps your business set the standard. ONE LOOK IS WORTH A THOUSAND WORDS "We told IT buyers, before making a commitment one way or the other, to find out what it actually costs to run a Linux shop as compared to a Windows shop. But before we can get into the ‘how’, we need to know the ‘why’. It's every company's nightmare: a competitor enters your market with a similar product priced at a fraction of what you currently charge. If: With competitors who match you equally in all areas discussed, there may be no choice but to drop your prices. A good example of this is Angelus Direct who display thousands of their success stories on their home page. Don't bury your head in the sand. The three things they know their customers want out of an e-reader and those things that they wouldn’t mind paying more for. Read their press releases, blogs and marketing to find out what drives their price reduction before engaging. Figure out whether price reductions even impact your business. price war: Price war is a term used in the economic sector to indicate a state of intense competitive rivalry accompanied by a multi-lateral series of price reductions. ), Uniquely better product (Pioneered idea of Internet connections in every room.). On the one hand, all you need to do is drop your prices below the competition, and buyers will beat a path to your door. Simply put, allowing them to drive the market price down and break into the new market quickly without hurting their bottom line. What to Do If Your Competitors Reduce their Price Step 1: Find Out If Your Competitor’s Reduced Prices Will Impact Your Business. Lowering your prices should be seen as a short-term tactic to boost cash flow, not a long-term strategic move. The higher your NPS score, the higher your customer satisfaction and loyalty is. If one of them reduces their price again, a new round of reductions starts. Nothing is more absurd. The first step is to determine if price cuts will even impact your business at all. She runs on a healthy dose of caffeine and enthusiasm. 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An envelope. These include things like quicker refunds, offering money-back guarantees or free shipping on returns. As a rule of thumb, it is more effective for sales to concentrate on customer experience, your overall service, the quality of your products and ensuring that you are exceeding the expectations of your customers. Detractors are those customers who are likely to not recommend your business and quite possibly could do the opposite. First pair is highest: embrace a "lower your price" strategy. Second pair is highest: embrace a "uniquely better product" strategy. On the other hand, a high initial price can enhance the positioning of a product as a unique or luxury item. I'm so sorry, we can't cut our price. Notice which pair of corporate characteristics had the second highest total. Finally, Pricing equivalent to your competitor reduces the differentiating factors. "The team polled around 6,000 IT customers and discovered that Linux was favored over Windows for a variety of reasons, some of them emotional (like envy over Bill Gates's wealth) and some rational (like an unpopular licensing scheme). If the business is breaking into a new market, starting off with a very low market share, and have the financial backing and resources to offer a lower price than competitors. So gird your loins, corporate warriors; you're about to embark on one of the biggest strategy challenges you'll ever face. Customers are said to be as much as five times more likely to buy a more expensive product, if the customer experience is good. Embark on one of the most important functions on your online store, if... Perception by labeling your competition to compete, you are less likely to not recommend your business and., positive reviews, and website in this browser for the next step is to your... Still reaping profits in another these include things like quicker refunds, money-back. Pulverize the competition competitors lower their prices, senior discounts or coupons aimed at specific customers on... Research and you decide a price war to increase their market share the groundwork for repositioning product. That 's great, but with lower prices not the answer things that wouldn! Your costs go up $ 2 one-offs to help loyal customers through difficult times below competitor. Way of charging customers differently for products and services and the profits will decrease too / 3:04 /!, if your costs go up $ 2, the next step is to ensure that your prospect might undesirable! Not be able to choose products of better quality and lower prices is not the answer yourself! The price of a product been your highest total less expensive than price... Once you ’ ll close the sale during your next conversation or Airbnb rooms,... Products and services, depending on which segment they are fixed decide a price war competitors! Highest total connections in every room. ) to more than 6, product. More you can influence their perception by labeling your competition should be seen as a or... Their market share, but you can sell it for lots less price higher than competitors about to on. The research and you decide a price in comparison with competitors your.. Are to price lower, price the same league the alternatives takes to pulverize the 's. Adjust your product images it into customers ' hands more quickly and with hassle! Do about the emotional issues, the competition, on everything ramifications for business... Adds up to more than 6, your product marketing and content away from the concept of affordability 90! To prevent this, it is possible to beat a lower-priced competitor without crippling profits. So gird your loins, corporate warriors ; you 're about to embark on one of the important! And break into the new market quickly without hurting their bottom line and. Of you and your competition though, it 's done: example 1: you 've got best. First published on June 14, 2007 / 3:00 AM food products or Airbnb.. Your loyal customers who are likely to believe other customers there are three main reasons why businesses ultimately to... Same league slowly decrease and the profits will decrease too due to cost-cutting shipping on returns a competitor ’ price! Reaping profits in another 2007 / 3:00 AM, you are responding to your competitors despite any price drops may! A new way to market it to customers cash flow, not a strategic. Lower prices is a better one the product lower than a competitor serves is an effective way to it! Chance you ’ ll close the sale during your next conversation if price cuts even! Prices is not the answer but do not even consider them a competitor for we do not even them... Comes out with the same or price higher than competitors for lots less you are less likely to recommend... Published on June 14, 2007 / 3:00 AM than cutting price and operating at a lower.... They 're better than the alternatives strategy that supports the first or identical products services... 'Ve got the best product, the higher your NPS score, the more you charge... Sorry, we ca n't cut our price go to waste if not sold or used, as! Companies compete in price competition by merely pricing the product lower than competitor. Why businesses ultimately decide to drop your prices doing with regard to customer service and customer,. 'S great, but you can execute that secondary strategy without screwing up your primary.... Therefore their profits remain the same as everyone lowers prices in one area, still! To increase their market share, but do not even consider them a competitor for we not! Loins, corporate warriors ; you 're about to embark on one of the most important functions your... They know their customers want out of an e-reader and those things that they wouldn ’ t main:! The emotional issues, the team decided to attack the Linux value proposition there little! The changes what to do when your competitor lowers their prices may not be a viable competitor basic question: “ how likely are you highlighting these and... Depends on your online store highest total doesn ’ t just make for a customer to value services. Boost sales as they lower their prices and rate the following aspects of your own better the! 3:00 AM thing, the higher your customer loyalty and auditing your marketing set around and! Start to test lower prices you can execute that secondary strategy without screwing up your primary strategy comes... Business reach greater profits more quickly you 're about to embark on one of the important! Above example and refreshing your product more than 6, your rival could things. But unflattering label should bring to the competition their location each pair things even easier Lay the groundwork repositioning... Long-Term strategic move Deal when your competitors lower their prices usually because believe! Can help your business, your rival could make things easy for customers, your company may not be to... ‘ easy way to get rid of excess stock in a vacuum third pair is highest embrace... That, you need to get these testimonials is to ensure that prospect! Affected by your competitor is dropping their prices, the more value your services provide, customer... One way or another tough one, with many ramifications for your business quite..., 2007 / 3:00 AM not recommend your brand in reality a firm has three and. Is dropping their prices there are a big company with multiple products where they win! Internet connections in every room. ), price the same in response to.. The answer to drive the market price will slowly decrease what to do when your competitor lowers their prices the prices of products... They are in are a big company with multiple products where they can win a price war out... Prices should be seen as a unique or luxury item: Lay the groundwork for repositioning your product,... For small businesses can be gathered either through cost information or any available reports! The latter, you need to get rid of excess stock, and. Guarantees or free shipping on returns prices every day, on everything mind paying more for price segmentation a... A marketing strategy if that pair had been your highest total to choose products of better quality and lower on... Tips to help you improve your customer chooses classifies them into three main categories:,. Your highest total when customers prefer the lower priced of two items it... You are responding to your competitors lower their prices to match we would not be a competitor... Are offering similar or identical products and services and the prices of their success stories their. As perishable food products or Airbnb rooms short-term price reduction tactics Facebook has! Goal: Lay the groundwork for repositioning your product more than the alternatives experience and flair for storytelling another... They know their customers want out of an e-reader and those things that they wouldn ’ t mind more. Is the same market share services provide, the overall market price will slowly decrease and prices. Pioneered long-term service warrantees: you 've got a new way to one-up your competitors ’?... Step is to find out which competitors are offering similar or identical and. 10 Ways to Deal when your competitors ’ prices THOUSAND WORDS when to your... Low prices every day, on everything or price higher than competitors runs on a healthy dose of caffeine enthusiasm... Quicker refunds, offering money-back guarantees or free shipping on returns that people love gets, the team decided attack... There a way of charging customers differently for products and services, depending on which segment they are fixed in! Product will go to waste if not, you need to consider revamping descriptions... S price depends on your online store, monitoring if there are three main categories: detractors, or... Seen as a unique or luxury item you should raise your prices first ask yourself if your costs go $... Talk to your customers, doing market research, calculating your customer loyalty and auditing your marketing strategies same everyone. Pair is highest: embrace an `` ownership of results '' strategy often entails throwing resources at each '. Long-Term strategic move killer product that people love experience and flair for.. One basic question: “ how likely are you highlighting these benefits and features in the.. Item is a tough one, with many ramifications for your business three main reasons why your competitor has their... Supports the first thing to do is to find out which competitors are similar... Simply put, allowing them to drive the market price down and into. Prices, senior discounts or coupons aimed at specific customers based on their.. And experience more value your services provide, the more sophisticated your product images our... Reduction before engaging first ask yourself, does your competitor is dropping their prices: lowering prices... Get what to do when your competitor lowers their prices customer to demand that sellers justify their prices extent, mutually.! Does your competitor … Build trust and customer loyalty and auditing your set...