When a competitor undercuts your company’s pricing structure by offering products and services at a lower cost, it is often your sales team that feels the pressure. It can be difficult to gauge the impact that a competitor’s lower pricing may have on your company’s customer base, but formulating a proper response first requires identifying the potential threat as soon as possible. In some cases, business leaders may be too focused on traditional competitors to recognize the emergence of a new, low-cost rival. Even if you manage to run your competitor out of business, chances are you may not have much of a business left when the battle is over. Unless you are certain that your company can emerge relatively unscathed, it is crucial to avoid a price war. In fact, lowering prices at all to compete with low-cost competitors and price undercutting may not be the best solution to the problem, as establishing a lower-price formula tends to erode profits in the long-term. To overcome a low-cost competitor without sacrificing profits, try shifting customer perceptions about your product away from money and onto value.
A 2018 Inc. article advises companies to consider what your customers care about most before making changes and updates to your business. You learn such things by building strong relationships with your customers and investing in their needs. Differentiating between types of customers and learning which market segments your firm can afford to lose is another valuable, short-term strategy for dealing with a competitor’s undercut price. Developing a plan for what to do when a competitor undercuts you can be hugely helpful in saving both time and money in the long-term.
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