During difficult times, the first reaction of some businesses is to slash their prices to draw more customers. However, just because your competitors have discounted their prices does not necessarily mean that you have to cut prices too.
Begin by tracking the price of your competitors’ items – a service offered by firms such as PriceManager. Think about why they reduced their prices. Perhaps they’re a new business and are trying to appeal to more customers by offering low prices.
Why You Shouldn’t Compete with Your Competitors on Price
In most cases, lowering prices could do your business more harm than good. You might unintentionally create the impression that your products are poorly made because of their ridiculously low prices.
Your pricing strategy must ideally focus on how you could make sure that people will buy your products instead of your competitors’ products, instead of just focusing on price alone. Evaluate your competitors to figure out if you could offer something superior.
What you really need to do is strengthen your relationships with your loyal and existing customers. This is immensely crucial since your competitors would also be targeting them.
When You Should Compete on Price
Some industries are just inherently price-sensitive. If this is the case, matching the prices of your competitors might be necessary. The first thing you need to do is estimate how low you could go without risking your business’ growth in the long term.
Begin with smaller price cuts and determine if it makes any difference to your sales. You must ideally view price cuts as a short-term strategy to increase your cash flow and not as a long-term strategy.
If you really must cut prices, ensure that you clearly communicate to your customers that they’re “one-offs” or “special offers” as sort of a reward to your loyal clients.
Before reducing your prices, you have to be certain that it would secure your profit at least, or better yet, boost it, and that you’re not carelessly throwing away your profit margin to cut prices.