When it comes to pricing, there are countless strategies that companies rely on. Schools of thought vary on how to price for success, and entire books can and have been written on the subject.
But the question for this post is a very basic one: Will you match your competitor’s price?
This is a question you should answer internally now, before it comes up. And it is likely to come up. Whether it’s a customer who makes the request: “I really like your product and would rather do business with you, but company X is offering theirs for 10% less.”
Or it comes from your boss: “Company X just lowered their prices. Do you think we should lower ours too?”
Being the price leader in your market is a legitimate strategy. And if that is your strategy, and a competitor undercuts you, you must respond.
But for most companies, the answer is more difficult. Matching a competitor’s price is not a strategy in and of itself. It might be a part of a special promotion, like we have seen recently from companies like Walmart and Best Buy have used as a way to compete with online retailers. Research is mixed on whether this kind of promotion can work.
The hard truth is that unless you are pursuing a lowest-price strategy, you should be able to offer a higher price than your competitor and still succeed. That’s because you should be pursuing other areas of competitive advantage.
It’s best to understand what you do better than your competitor. When they lower their prices, you don’t lower yours in response automatically. Instead you continue to outdo them in those other areas.
If you don’t have any competitive advantage, and indeed your competitor offers the exact same thing as you, then you are in a commodity business, and price is all that matters. So prepare for a long and brutal price war.