Best practices for combatting low-cost competition
Managing your pricing against low-cost competitors can feel like playing a game of poker. But how do you know when to hold ’em and when to fold ’em?
There’s a fine line between lowering your prices to get a competitive advantage and selling yourself short. And when low-cost competitors are chipping away at your market share, it’s even more critical that you understand the contours of that line.
When you learn your product or service costs more than your competitors’ offerings, you might think lowering prices to increase sales is the best move. But a pricing strategy based on competition creates the expectation in customers’ minds that price is the only thing that matters.
It can also force you into a race for the bottom that ultimately leaves you with threadbare margins and drastically reduced profit. Fortunately, there’s a better way: raising your value.
Defining and communicating your unique value proposition
You want your customers to focus on the benefits you offer rather than the price you charge (which logically happens with a pricing strategy based on competition). The first step is to define a unique value proposition: Figure out what is most important to potential buyers. Then, highlight how your product or service positively impacts a buyer’s life or business while meeting their needs.
Anyone in your company should be able to articulate exactly what sets you apart. Customers should hear consistency when you describe your unique value proposition. Those messages can come in your employees’ own words, but everything should be clear, simple, and consistent enough that customers walk away with a solid understanding of your value prop and a strong sense of alignment.
Are you facing a competitor’s low-price offensive? Implement these best practices in response.
1. Raise your value.
If you sell a commodity, the price will dictate a buyer’s decision. But if your product has a defined unique value proposition, your worth is elevated in the consumer’s mind.
Take the time to explain why, regardless of price, your product or service is “worth it.” This communicates to customers that they should focus on return on investment (ROI) rather than just price. By focusing on the value your product or service provides — not where your price ranks among the competition — you can avoid a price war.
2. Change your messaging.
A pricing strategy based on competition assumes your product is the same as everyone else’s. Instead, clearly define why your offering is different and better.
Maybe you’re a financial services firm that primarily works with Gen Xers who value the ability to delegate. Your unique value proposition might highlight how your firm’s approach to wealth management allows clients to be involved as little or as much as they like — a “one-stop-shop” for their financial services needs.
3. Ask your customers why they buy from you.
Your customers are one of your best sources of market data. Find out how they feel about your product or service and pricing. You can do this informally (e.g., via a standing meeting or appointment) or set up a specific time to discuss.
Offering customers a free lunch or coffee for the opportunity to pick their brain is always a good option. Focus on questions like: Why do they keep coming back? How do they think your prices stack up? Why do they choose you over lower-priced options? This will help you determine what sets you apart in customers’ eyes.
4. Don’t limit yourself to your current customer base.
You certainly shouldn’t abandon your current customer base, but you might consider shifting some of your focus to a new audience segment that isn’t so focused on price. If the quality of your work is up to par, you can likely target a more affluent clientele.
Just make sure those selling points come across in your messaging. You’ll also need to leverage advertising and word of mouth in circles where your new clientele operates.
5. Be the premium product.
Rather than lowering prices to increase sales, what if you focused on making your product more premium? What could you add to your offering to justify raising your prices? Just be prepared to tell the market why you are worth the higher price.
For example, consider Starbucks’ comeback after the market decline of 2008. Americans were turning to cheaper alternatives until Starbucks reiterated its commitment to quality with lines like “If your coffee isn’t perfect, we’ll make it over” and “Beware of a cheaper cup of coffee. It comes with a price.” With a defined unique value proposition, Starbucks avoided a price war and attracted customers strictly based on its commitment to quality.
The act of cutting your price is easy — but so is folding in a poker game. On the other hand, playing your hand strategically takes more commitment but can lead to a win in the end. The same goes for determining how to raise your company’s value.
The process takes time and resources, but it will ultimately help establish your company as a premium brand and set you up for sustainable success.
Mark Thacker is the president of Sales Xceleration, a firm specializing in sales strategy, process, and execution. Mark has a 33-year history of sales leadership and success in diverse industries. Mark is the author of “Beyond the Mountaintop: Observations on Selling, Living, and...