You already sell your specific product on the market using a specific pricing strategy. However, one of the biggest problems for entrepreneurs is that price is their only competitive differentiation from competitors.

Here, I would like to explain some strategies and processes to compete with cheaper competitors effectively.

What You Can Do If You Compete With Low-Price 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.

1. Increase productivity in all your systems, decrease costs, and create new opportunities to charge less for your products and services.
2. Add value to your offer so you can charge the same or a higher amount for your products and services, even if your competitors charge less.
3. Don’t take any action 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, do not take anything, and start losing your profitability.

When discussing 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.

Related: How to Beat Competition in Business? 13 Steps to Beat Your Competition

Strategy #1: Differentiate Your Offerings.

You must respond to five important questions here to differentiate yourself and develop an adequate pricing strategy.

Here are some guidelines on what to do regarding the price based on some responses to the questions below.

1. Why are competitors cheaper than you?

This question and the correct answer will show you many important aspects of 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 the different strategies you may need to implement to stay ahead of your competition without sacrificing profitability.

2. What are they trying to achieve with their cheaper products and services?

Any competitor’s decision has specific reasons behind it. In this process step, your job as an entrepreneur is to discover why your competitors offer lower prices.

Are they trying to increase their market share by participating in your current market share? Are they simply trying to be more competitive and increase their customer base? Do they find themselves able to decrease their prices to escape getting out of business?

As you can see, these questions and their answers will show you what you must do based on the competitor’s reasons for starting to compete on a cheaper pricing strategy.

3. What about the market? What do 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 with specific questions about the prices and value you and your competitors ship to them.

Next, you should go outside your buildings and start talking with them about the prices and the value, as well as 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 be competitive with cheaper competitors, 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 consider possible improvements related to features, quality, additional services, better customer relationships, better communication, and many other things that can increase the value of your offerings.

5. How can you show and prove to customers why you are the better choice?

To effectively compete with cheap competitors, you must prove to your customers that you are the better choice. Even if it is the last step in this process, the last question is one of the most critical.

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 better profitability than it is today before you face with cheaper companies.

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.

Strategy #2: Lower Price Point

Even though I am uncomfortable with this strategy because it will put you in a price war on the market, you can still use it to compete with cheaper competition.

What does this strategy mean?

This means that you will lower price of your offering to be the same as or even below your competitors’ price. Suppose that there are many other companies in your target market, and all of them use such pricing. In such a way, you will be involved in already existing price wars that, in the end, in many cases, will not have the winner because all of you will lose the war if you look at the financial statement.

However, if you want to succeed, this strategy will require you to conduct many different activities.

For example, first, you must ensure that the new price will cover costs. If not, you will only speed up your business’s failure.

Second, you must improve your processes or remove some extra offerings from your total offer to ensure low costs, which will allow you to decrease your prices.

Third, and most importantly, you must check who your target audience or market segment is. If you have used higher prices until now, you have targeted high-end clients who are ready to pay more for better value in your offer and more benefits they will achieve. So, this strategy will require changes in your overall business strategy, especially your marketing strategy.

Strategy #3: Become a Low-Cost Business

This strategy will require changing your revenue model from selling higher-price products or using premium price rates to offering low-cost products and services. So, you must become a low-cost business.

This strategy will require removing most of your offer’s extra value and benefits to have a low-cost offer. In this case, you must focus on providing your product or service’s basic needs and functionality.

You may also need to consider alternative sourcing options for supplies or services to maintain low prices. For example, you could work with inexpensive suppliers or manufacturers instead of using high-end suppliers. Furthermore, you must adjust your marketing strategies because targeting a different market segment with lower-priced products where the biggest benefit is price requires a different approach.

However, becoming a low-cost business doesn’t mean you can compromise quality. Maintaining high-quality standards is important if you want to build trust and retain customers.

In addition, implementing cost-saving measures such as improving business operations, reducing waste, and negotiating better deals with suppliers can help maintain low prices. At the same time, you can still stay competitive by providing high-quality products or services.

Strategy #4: Ignoring Cut-price Rivals

Lastly, you can use the strategy and ignore competition with a low price rate, which means continuing to sell your product without changing anything. When it comes to using this strategy, you can have two different results:

• If you focus on offering more value to your customers, you will still be competitive and will not have direct implications for your main offering, and you will sell the same number of products. But, in such a case, you will risk the possibility of seizing a market opportunity for a market segment that requires low-cost products and services.
• If the low-price offerings deliver similar value to your customer segment, ignoring low-cost rivals will make you less competitive and eat your market share. Then, your company will have trouble.

According to an article in Harvard Business Review based on research, the author said that ignoring cut-price rivals is a mistake because it eventually forces companies to vacate entire market segments.

For example, Apple is a luxury goods maker, but at some time, the company decides to keep two or three iPhones on the market simultaneously. This way, the company continues to be a luxury goods maker, launching smartphones with premium prices but also offering previous generations at a discounted price, typically $100 lower compared to the previous price, as well as those that were supposed to become budget versions like iPhone SE, even more than $200 cheaper.

In such a way, Apple continues to focus on its high-end clients but still tries to be competitive and get some share of cheaper products for totally different market segments.