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
Simple Strategies to Manage Your Seasonal Inventory
When managing seasonal inventory in the retail sector, careful planning is critical. Many retailers find themselves in a balancing act between avoiding leftover inventory and also empty shelves. To escape heavy markdowns at the end of a season and potential cash-flow problems, follow these strategies for profitable results.
Planning for Success
- Start Early: Begin planning well in advance of each season, reviewing last year's sales data to identify trends and patterns.
- Create a Detailed Plan: Organize your information into a comprehensive plan, breaking down each season's data by category or time frame. This will help you visualize your inventory needs and make informed decisions.
- Leverage Data Analytics: Utilize data analytics tools to gain deeper insights into customer behaviour, demand forecasting, and inventory performance. This can help you optimize your stock levels and avoid overstocking or understocking.
Timing is Everything
- Anticipate Demand: Forecast demand based on historical sales data, market trends, and upcoming events or promotions. This will help you determine the optimal time to order and replenish inventory.
- Avoid Stockouts: Ensure you have sufficient inventory to meet customer demand, especially during peak seasons. Stockouts can lead to lost sales and customer dissatisfaction.
- Stagger Shipments: Consider staggering shipments throughout the season to avoid excess inventory and reduce the risk of markdowns.
Repeat Success
- Identify Best Sellers: Analyze your sales data to identify your top-selling items for each season. Prioritize these items for replenishment and ensure they are always in stock.
- Optimize Reordering: Implement a system for reordering popular items based on sales velocity and demand forecasting. This will help you maintain optimal stock levels and avoid stockouts.
- Monitor Inventory Levels: Monitor your inventory levels to ensure you have enough stock to meet demand without overstocking. Use inventory management software or tools to track stock levels and identify potential issues.
Making the Most of Seasonal Cash Injection
If you've secured a seasonal business loan to support your inventory needs, here are some practical ways to use the funds:
- Inventory Investment: Allocate funds to purchase additional inventory, particularly for high-demand products or new offerings.
- Marketing and Promotions: Invest in marketing campaigns to drive sales and increase brand awareness during your peak season.
- Staffing and Training: If needed, hire additional staff or provide training to ensure efficient operations and meet increased customer demand.
- Equipment Upgrades: Consider upgrading equipment or technology to improve efficiency, productivity, and customer experience.
- Debt Reduction: If applicable, use a portion of the loan to reduce existing debt and improve your financial health.
Marketing and Customer Engagement
- Leverage Seasonal Marketing: Create targeted marketing campaigns to promote seasonal products and drive sales. Utilize email marketing, social media, and in-store promotions to reach your customers.
- Engage with Customers: Seek customer feedback to understand their preferences and adjust your inventory strategy accordingly. Offer personalized recommendations and provide excellent customer service to encourage repeat purchases.
By following these strategies and staying informed about market trends, you can effectively manage your seasonal inventory, minimize waste, and maximize profitability. Remember, consistent planning, data-driven decision-making, and a focus on customer satisfaction are essential for success in the retail industry. Contact iCapital at 1.877.251.7171 to apply for a business loan and get the funds you need in 48 hours.