Customers who aren’t loyal to a brand typically try to seek the lowest price. This is especially true of mass-produced commodities, but price can also influence the success and failure of small businesses.
Unfortunately, sometimes competitors try to undercut your prices, which can escalate into a price war.
Price wars are scary for small businesses because they threaten revenues and profits, and could lead to layoffs or bankruptcy. The good news is that there are several key strategies you can employ to make the best of a price war.
Increase Quality, Don’t Lower Price
Price has a powerful influence on how a customer perceives the value proposition of a product – it’s the difference between being cheap and being inexpensive. The word “cheap” tends to carry a negative connotation to it, while the word “inexpensive” has a more positive ring. Many times, customers will even perceive the more expensive product to be higher-quality, even if they don’t know it’s key benefits and features.
One prime example of this is the wine industry. Even if a diner wasn’t a wine aficionado, they would inherently perceive a $100 dollar bottle of wine to be inherently higher quality and tastier than a $50 bottle of wine. The problem is, however, that some small business owners are so short-sighted they only care about having the lowest price, and only have the trick of escalation up their sleeve.
The end result isn’t pretty, either.
After you respond by lowering your prices, they’ll turn around and do the exact same thing again. After a few repetitions of lowing prices, profits start to erode for both companies.
Instead of responding by slashing prices, try to increase the quality of your product to differentiate it from your competitor’s product or service.
Take a Step Back and Analyze Your Competitor
Have you stopped, taken a step back (and a deep breath), and asked yourself, “Do I even need to engage in a price war to begin with?” It could very well be that your competitor is acting out of desperation instead of competition. If you have any insight to how profitable or ruinous business has been for the competition lately, take time to think about it.
Consider that a failing business trying to drum up a higher volume of sales and customers will sacrifice larger profits just to keep their heads above water.
Engaging in a price war with a desperate and failing business may not be your best option. Instead, it may be better to play the long game and hold tight with your current pricing.
Step Up Your Social Media Marketing Strategy
Price and product or service quality aren’t the only factors that determine whether a company makes a sale. Another key way to beat out your competition during a price war is to get creative on social media. A competitor’s weak or non-existent presence on social media is a valuable opportunity to preemptively reach customers and sell them your product and service before they even have a chance to see your competitor’s offer.
Use social media platforms like Facebook, Instagram, and Twitter to directly engage with your customers.
Furthermore, you could offer promotional materials if the user makes a purchase, be it a future discount, free online content, digital resources, and other similar incentives without slashing the price of your product.
Utilize a Sales Force
Some small businesses may benefit from a small sales force, especially if your competition doesn’t have one. The advantage to a sales force is that it is more proactive than advertising, and in many cases, it doesn’t even require that the customer or lead be physically present in your store. There are several ways to go about implementing a sales force too.
I’m sure just about everyone has been contacted by a door-to-door sales person before, or been contacted by someone making warm or cold calls. Why do you think businesses still employ these methods to reach customers? Naturally, because they still work to some degree.
Instead of just trying to wage a price war, get more creative and aggressive than your competition and bring the salespeople to your customers.
Remember That Price Cuts Are a Last Resort
You shouldn’t see price cuts as your primary tool of combat; rather, you should think of them as your last-ditch effort to beat out your competitor. If your competitor isn’t going out of business and trying to raise some quick revenue, they may be genuinely trying to undercut you.
If you can’t find any chinks in their armor (i.e. their social media strategy is strong, their profits are healthy, etc.) then you may be in for the long haul. However, be aware that if you, as a small business owner, are fighting a big brand, chances are slim to none that you’ll be able to win a price war because they have so much more capital and their financial rope is much longer than yours.
If that’s the case, it’s time to get creative. Take a step back and analyze your customers. Though it may be painful, you need to drill deep and find your core market segments, possibly with marketing personas (if you haven’t done this already). Then, you need to find a way of offering your core market segment something your price-warring competitor cannot.
Get Creative, Not Defensive
Price wars, though alluring for competitive small business owners, are a great way to slash profits and harm the future trajectory of your business’s potential. Instead of immediately jumping to aggression and butting heads by lowering prices, remember that your business, your products, and your services have value to your customers.
Though the price is important, it’s not the only thing customers care about. That’s one reason why you should strive to build personal relationships with your customers and to take care of them well enough that they stay loyal to your business.
