Even if things don't go that far with your company—or even if you win a price war—you can do lasting damage.
“Never be the one who starts a price war because a war is going to be costly not just for your rivals but also for yourself," says Jeanine Miklos-Thal, an associate professor at the Simon Business School in Rochester, New York.
New customers may suddenly wonder why your offerings are so cheap and decide you have an inferior product or service. Or you might get customers so accustomed to the low prices that when raise them, they'll stay away or feel betrayed.
"Devote at least as much thinking about how to escape the price war as about how to win it," Miklos-Thal advises.
Still, price wars can't always be avoided. If you find yourself in one, you may want to try these five strategies.
1. Do your research to understand why you're in this price war.
Just because a competitor has lowered their prices doesn't necessarily mean you should drop yours, too.
Maybe your competitor isn't the scary threat you think it is and is actually making a desperate attempt to raise cash before it crashes and burns. Or maybe you're facing numerous competitors, which is the type of price war that Ammi Borenstein is engaged in.
“My business is in a price war every day," he says.
Borenstein owns Transitions2earth, which sells biodegradable cutlery, utensils and servingware.
“We sell a range of products to wholesale and also across several online retailers," he says. “The highly competitive nature of these online environments means that we have to constantly monitor pricing in order to stay competitive and maximize profits."
—Nicole Mathews, owner, Chicks Inc.
But Borenstein doesn't automatically lower prices for all of his products every time he sees that a competitor has lowered theirs. He is constantly doing market research, often using software to help him get a sense of why other competitors are lowering their prices and by how much he should lower his own.
Generally, he says he tends to lower his prices significantly when his company debuts a new product.
“We have found on all of the major online platforms that it's critical to gain relevance for new products in the internal search engines. This happens by generating sales," Borenstein says. “Generating those sales comes from having a good product at an initial compelling price."
A low price can help attract attention to new products from potential customers, and that attention can lead to more sales, Borenstein adds.
2. Add value to the product or service without lowering the price.
Nicole Mathews, the owner of Chicks Inc., a small marketing firm in Houston, says that she has helped quite a few businesses survive price wars.
One of her clients, Waterless Medi Pedi Spa in Atlanta, was going through a price war with other salons. Instead of continually lowering prices to the point of harming the business, Mathews suggested that the owner reach out to a nail polish company that the salon used and request 200 bottles of their newest polish for a marketing promotion.
“We ran a campaign that gave a bottle of polish to every customer that came in to the salon," Mathews says.
The company manufacturing the nail polish was evidently happy to get the publicity that would come with giving away free bottles, and the campaign attracted new customers without lowering prices, Mathews says.
“To win a price war, you must be strategic in your firing power," Mathews says. “Creative marketing and advertising will help win price wars all day long."
And, sure, Mathews would feel that way. Advertising is her business, after all. Still, spending revenue on the occasional marketing campaign is an occasional expenditure that can hopefully help you make more money. Unless you make it clear that it's a temporary sale, lowering prices can be an indefinite, somewhat permanent position you're putting yourself in. Not only is there little likelihood of a return on investment—you're possibly making less money that you can invest in your business.
Keep in mind that you can add value to your business in other ways than giving away somebody else's products. You could keep your prices steady but offer more of a product and service, so the value is better. You could even raise your prices a little—but then offer more of the product or service. That way, the value is still strong for the customer, but you don't feel as if you're giving away too much.
3. Advertise if you can't lower your prices more in the price war.
Borenstein says that sometimes rivals will undercut his price, tempting him to go even lower to the point of having no profit. But instead, he'll spend money on advertising his products.
“The cost of the ads might get our total profit to zero dollars," he admits, “but as the popularity of the item grows, we can reduce or remove the ads—and return to profitability based on not having lowered the price."
4. Find a way to stand out in some other way than price.
Yousif Hazboun is the marketing communication manager for GotPrint, a Los Angeles-based printing company that specializes in helping businesses advertise on everything from business cards to flyers. GotPrint has been in its share of price wars, but he says he found a way to get out of it.
“GotPrint came up with its own product line called Trifecta paper where no one can compete with them on this premium paper quality," Hazboun says.
Many retailers do this. If you think of department stores you shop at, many carry their own clothing lines that you can't get anywhere else among the name brands they sell. Supermarkets sell food brands you can buy at other grocery stores, but also their own private label brands that you can't buy anywhere else.
By assuming customers like your product line, and they can't get it anywhere else, you can take your business—or part of your business—out of the price war.
5. Focus on your brand.
Even if your company's message is all about low prices, you presumably want the public to think of your business as an entity that they can trust. Instead of trying to get people to spend as little money as possible on your product, consider building up your business's trustworthiness.
In order to do that, try focusing on values that competitors will have a hard time to compete with you on, Hazboun says.
That could mean offering superior customer service. You could also try improving the quality of your product or service and making it clear to consumers that yours is not the cheapest buy on the market for a reason. You might want to play up your incredible return policy or warranty service, or the fact that your employees are more knowledgeable than the ones at your rivals.
Consumers benefit from price wars, and they naturally love to pay less. But they want a good experience, too, and to be reassured that the money they spend on your business is worth it.
“If all you focus on is pricing, you have to have the lowest prices in order to compete and acquire new customers," Hazboun says. “Low prices becomes your company's sole value proposition."
And that may be a price you aren't willing to pay.
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