The dangers of competing on price

October 13, 2014 10:17 pm | Published by | Categorised in:

A lot of businesses have a narrow focus on reducing their prices to keep business going, holding the belief that lower profit margins will be offset by an increase in volume. Unfortunately, this is a strategy that works for very few businesses, and in pursuing ever lower prices you made end up inadvertently damaging your business.

Of course, you should remain aware of what your competitors are charging, and review your pricing structures regularly. However, you should remember that cheaper is not necessarily better and that there are a lot of other things that are important to your customers.

Here are some tips to help businesses that are trying to compete on price:

Think about what you’re sacrificing: If you want to compete on price, it’s natural to try to reduce your operating costs. For most businesses, the first areas to cut costs are wages, marketing and suppliers. Unfortunately, cutting corners in any of these three areas is a huge risk. Think very carefully about whether this is going to pay off for your customers.

Customers can be fickle: If you build a customer base on low prices alone, then these same customers will abandon you the moment a cheaper competitor arrives. Spend some time thinking about where competition may arise, and how you would be able to survive a price war. If you can see risks here, you need to think about other ways to keep customers loyal.

Value doesn’t mean cheap: Remember that value refers to quality for money, not just low prices. If your product or service is good value, it won’t matter if you’re not the cheapest. By targeting the right customers with a valuable product, you will put yourself in a great position to compete.