One of the biggest problems for entrepreneurs is the price as the only competitive differentiation from competitors. So, how can you effectively compete with cheaper competitors?
Yes, this is one of the biggest problems, but only for companies without enough knowledge about possible solutions for their pricing strategies. Generally, there can be several things that you, as an entrepreneur, could do 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 the 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 journey with excellent profitability and business growth.
In this situation, you have three options: decrease your costs, add value to your offer, not take anything and start losing your profitability.
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 to decrease current prices.
Here, I would like to explain a five-step process through five crucial questions related to the second strategy: adding value instead of lowering prices to compete with cheaper competitors effectively.
1. As a first answer the question: Why they are cheaper than you?
This question and the correct answer will show you many important aspects about your competitors and your company.
Do you have higher costs developing and shipping the same value? Is their value smaller than yours? Are their processes more productive compared with yours?
These answers will 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.
2. What they are trying to achieve with the cheaper products and services they are offering?
Behind any competitor’s decision, there are specific reasons. Your 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 by taking part in your current market share? Are they simply trying to increase their customer base? Are they find themselves in a position to decrease their prices 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 a cheaper pricing strategy.
3. What about the market, what they think about the price difference?
The next question is something that will put you outside your and your competitor’s shoes and talk with the most important person for your business, your customer. You have several options when working on the correct answers to this question. First, you can use surveys that will have specific questions about the prices and value that you and your competitors ship to them. Next is to go outside your buildings and start talking with them about the prices and the value, their specific needs or wants for today and the future. You need information that will tell you where your customers want you to focus your attention in the future.
4. How can you differentiate your products and services to compete with cheaper competitors?
If you want to compete with cheaper competitors effectively, you need to differentiate your products and services on the market. Now, these questions will be used when you choose the strategy to increase the value of 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 you can use to increase the value of your offerings.
5. How you can show and prove to customers why you are the better choice?
To effectively compete with cheap competitors, you need to prove to your customers that you are the better choice. Even if it is last in this process, the last question is one of the most critical 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 to explain and prove the difference in value that your customers will get in exchange for the more significant amount of money they will need to pay to you.