“The moment you make a mistake in pricing, you’re eating into your reputation or your profits.” – Katharine Paine
The market continues to become competitive – irrespective of which part of the globe a company operates within. To make matters worse companies must contend with low priced competitors – who may or may not offer the same quality, but ‘steal’ customers by luring them with seemingly lower prices. Gaining customers despite low priced competitors is a serious challenge that most companies face today, but the solution is not to engage in a price war by lowering prices, which would adversely affect profitability for everyone. The fact however, is that the newly mushrooming companies come into the market with different business models and ‘armed’ with the latest technologies, and are able to sustain with dramatically lower prices than the ones of established businesses and brands. This makes it even harder for these ‘old’ businesses to continue with the same prices and business models. Cutting prices in an attempt to gain customers and market share is not a beneficial strategy in the ‘long-run’.
Research shows that customers today are more interested in associating with companies that offer top class service, consistently, complementing high quality offerings. While it may be possible to lure customers initially with rock bottom prices, it is not a sustainable practice since ultimately customers want superior value and service, and would be willing to pay incrementally more for these. Companies that ‘win’ by offering low prices are those that build internal efficiency, lower their own business costs, and reduce their expenses – they are then able to pass these savings on to their customers through lowered pricing. Gaining customers despite low priced competitors would not be a challenge if companies were able to build such internal competence.
For companies to sustain and win despite low priced competitors they would need to conduct research that would involve analysing what their own businesses offer and where they stand with regard to competition. In addition, an analysis on the needs, preferences, and expectations of customers would also be imperative. The research would enable a company to decide which customer segments it currently deals with, and understand the customer segments of its low priced competitors. If the market segments seem extremely varied, there would probably be no cause for concern, however, if the low priced competitors could possibly enter the same market segment, it would be necessary to take measures for gaining customers despite low priced competitors and preventing them from ‘stealing’ your current customers. Low cost businesses could prove to be a real and sustaining threat even to established businesses with long-standing customers.
It would be imprudent to assume that small and low priced competitors could not over time, become a sustained threat to businesses. Companies that believe their low priced competitors can do no long-term harm probably do not realize that even if they do not cover the entire market, they can seize a sizeable chunk of the business, causing serious long-term damage to companies unable to beat them on price. Gaining customers despite low priced competitors would require putting in place several tactics such as – focusing possibly on a couple of customer segments, delivering a benefit or a product that would be better and unique in comparison to competitors, and maximised efficiency of their day to day operations in order to keep their internal business costs to the bare minimum. Gaining customers despite low priced competitors is possible – does your company apply any tactics to ensure its market position despite fierce competition?
Standing out and appearing unique is the most important in the market today, and gaining customers despite low priced competitors would further accentuate this requirement. Differentiation through customer service and offerings would give a company a sustainable competitive advantage, and consistent efforts in this regard should be at the core of any company’s promotional and marketing activities. Customers must be able to see clearly how much better a company is, based on the benefits and value it provides to them – low prices would not be such a problem. In addition, the benefits that a company offers must be exactly what customers want and expect, and would gladly pay for. The focus of a company must remain on consistently excelling in the areas that customers expect, and ensure that every effort of the company must revolve around creating value and long-term sustainable benefits for the customers. Of course, in order to know exactly what customers want it is essential for a company to ask them directly through any means possible such that there is no guesswork involved. Being customer-focused is one of the top ways of gaining customers despite low priced competitors.
Customers want value for their money – a company that can offer them such value consistently are more likely to attract customers even if its prices are not amongst the lowest in the market. It is important to have a pricing strategy to differentiate a company across the varying market segments, which should include creating value for customers over and above the price being charged. Simultaneously, it would be prudent for a company to keep its costs low and reduce expenses such that it is able to meet its own business goals, while sustainably supporting growth, innovation, and continuous development of its business. It is never wise to drop prices simply because of low priced competitors since that could prove damaging for a company. Instead, a better strategy would be to create a product or product line with a price range matching that of competition, while sustaining a higher price range for the main product line. This way a company would not only compete and succeed at gaining customers despite low priced competitors, but would also sustain its profit margins through customers who may not be price sensitive.
As mentioned, customers are searching for companies that prove to be partners in their success. They want to associate with companies that can offer more than just products – companies that offer solutions to some long-standing problems would be preferred over others – even over the low priced companies. Hence, when promoting a company’s products it would be prudent to highlight the benefits of the products and show how they can help in alleviating the problems of customers. Customers do not buy for product features, but rather for the effectiveness of an offering in making their lives easier and contributing to the success of their business. Product features are now similar across various companies – the differentiation lies in the benefits and value the features afford customers. Gaining customers despite low priced competitors is all about providing ready and useable solutions to customers – something that no other market player may be able to offer in the near future.
Low priced competitors often compete purely on price, and as such are unable to offer solutions for customer problems. In order to outdo these competitors, it would be smart for a company to merge products and services as one robust offer. While gaining customers despite low priced competitors can prove to be a challenge, it is certainly doable. There are several strategies beyond the ones mentioned, and the strategies a company applies would depend on a company and its customer base. The solution is simple – stay away from the self-defeating price war, and focus on raising the bar on its quality, reducing internal expenses, and raising operational efficiency. It would be necessary to give customers more than they expect, such that their sensitivity to price would reduce, and your company would gain a sustainable advantage and be in a better position of gaining customers despite low priced competitors. What strategies has your company adopted to remain undefeated by the price war?