Yes, this is one of the biggest problems, but only for companies without enough knowledge about possible solutions when it comes to their pricing strategies. Generally, there can be several things that you as an entrepreneur could make if you want to compete with such competitors without losing your profitability rate.
- Increase productivity in all your systems resulting in decreasing costs and create new opportunity for you to charge less amount of money for your products and services.
- Add value to your offer so you can charge the same or larger amount of money for your products and services even your competitors charge less.
- Don’t take any actions and start losing your market share and profitability.
As you can see the first two strategies are better for your company, because you will continue on your own journey to the right profitability and business growth.
When I talk about effective competition with cheaper competitors I think about choosing the right strategies for your company, so you will continue to grow your business without the pressure on your company for decreasing current prices.
Here, I would like to explain a five step process through five important questions related to the second strategy that means adding value instead of lowering prices in order to effectively compete with cheaper competitors.
- As a first answer the question: Why they are cheaper than you? This question and the right answer will show you many important aspects about your competitors, but also about your company. Do you have larger costs developing and shipping the same value? Is their value less than yours? Are their processes more productive comparing with yours? These answers will start to shape different possible strategies that you will need to implement if you want to stay ahead of your competition without losing anything on your profitability side.
- What they are trying to achieve with the cheaper products and services they are offering? Behind any competitor’s decision, there are specific reasons. You job as an entrepreneur in this step of the process is to find the right reasons behind this decision of your competitors to compete with lower prices. Are they trying to increase their market share taking part from your current market share? Are they simply try to increase their customer’s base? Are they find themselves in a position to decrease their prices in order to escape getting out of business? As you can see, these questions and their answers will show you what you will need to do, based on the competitor’s reasons to start competing on cheaper pricing strategy.
- What about the market, what they think about the price difference? The next question is something that will put you outside your and competitor’s shoes and talking with the most important person for your business, your customer. You have several options when working on the right answers on this question. As a first you can use surveys that will have specific questions related to the prices and value that you and your competitors ship to them. Next is to go outside your buildings and start talking with them, not only about the prices, but also about the value, their specific needs or wants for today and future. You need information that will tell you where your customers want you to focus your attention in the future.
- How you can differentiate your products and services? Now, these question will be used when you chose strategy to increase the value to your offerings instead of decreasing prices as an answer to the cheaper competitors. You can think about possible improvements related to features, quality, additional services, better customers relationship, better communication, and many different things that can be used to increase the value of your offerings.
- How you can show and prove to customers why you are the better choice? The last question even it is last in this process, still it is one of the most important questions. Why most important? Because, simply if your customers don’t clearly see the difference for their money in the form of what they will get, you can’t expect that your strategy depending on adding value will succeed in bringing you the same or the better profitability than it is today before you face with cheaper competitors. You need to build clear steps that your company will follow in order to explain and prove the difference in value that your customers will get in exchange of larger amount of money that they will need to pay to you.