What To Do If A Competing Business Undercuts You In Price

Every 2 or 3 months, I set aside a couple of hours to analyze the competitive landscape for our online wedding linens store and to see what our competitors are up to. And in most cases, it’s business as usual. Sometimes a new competitor pops up and a new one goes under. Sometimes I find some new products that I feel that our store should carry. But for the most part, things are pretty calm.

Photo by the Justified Sinner

This past week however, I noticed that one of our old competitors completely revamped their website and started slashing prices on similar products. When I told my wife about this, she seemed very concerned.

After all, how could our little online store possibly compete against a store with such low prices? Unless they were purchasing their products at a much lower cost (unlikely), how could they possibly be making a decent profit?

Should we lower our prices as well? Should we try and undercut them right back? Should we up our advertising campaigns? What is the right course of action to take when you find that your competition is undercutting you in price? While I can’t answer this question for all businesses, I can tell you what my wife and I plan to do.

We Are Holding Firm On Price

First off, we are holding firm on price. Unless, we see a drastic downturn in sales for those competing products, we plan on keeping things the same. Why? There are three reasons.

For one thing, there is a wide variation in the quality of linens from one store to the next. Perhaps, our competition is charging less because they are selling lower quality product. If anything, lower prices may actually be perceived as low quality to the end customer.

Because we are in the special event and wedding industry, people are willing to pay for the best quality that they can find. Therefore ironically, slashing prices could be the absolute wrong thing to do. In any case, we are going to go ahead and purchase some of our competitors products so we can see what we are up against.

Second of all, I think that our website and breadth of products are far superior to this particular competitor. Why should we slash prices when we have a better store? I believe that our customers will know that we offer a better shopping experience and have more confidence in purchasing from us.

Finally, slashing prices can only do more harm than good. If we keep cutting prices to match our competition, prices will continue to drop which will erode margins for our entire niche. In addition, the wedding industry tends to be more price insensitive so it doesn’t really make sense to compete on price alone.

We Are Filling In Some Gaps In Our Product Line

To this competitor’s credit, they have really done a good job of revamping their website and offering several products that we don’t currently offer. So my wife is currently in the process of filling the gaps in our product line and selecting new items that we can sell in our store as well.

Because things have been a bit hectic with our new child, we’ve become a bit lax in improving our product line for the past several months. But now that things have settled down, it’s time to resume kicking butt!

When we first started out, my wife and I used to feel guilty about emulating our competitors. But you know what? Analyzing the competition is one of the most effective ways to improve your business and it also lights a fire underneath your butt.

Why not select the best aspects of your competitors and try to do better? The more we can differentiate ourselves from other businesses and offer a more complete selection of product, the higher prices that we can command.

We Are Going To Focus More On Unique Designs

If this competitor has taught us anything, it’s that we need to focus more on products that no one else carries. We need to concentrate more of our energies on products that we personally design. This will ensure that very few of our competitors can simply copy us and compete purely on price. The main disadvantage is that it takes much longer to custom make our own linen products (sometimes this takes up to 4-5 months) but in the long run, it’s always worth it.

We Will Continue To Expand Our Free Content

Deciding where to shop often goes way beyond just price alone. Our online store offers valuable tutorials and craft ideas using our products completely free of charge. And I strongly believe that psychologically, customers are so impressed with our tutorials that they feel more inclined to buy from us even if we are slightly more expensive.

As a result, my wife and I will redouble our efforts to expand the tutorials section of our store. In addition, more quality content will lead to more backlinks which will lead to higher search engine rankings as well.

Price Isn’t Everything

While price is the most important criteria for some people, sometimes you have to ask yourself whether these are the customers you want to target. In my experience, our cheapest customers have been the most demanding, so we’d rather focus our efforts on those seeking quality and a better shopping experience.

Of course, it all starts with differentiation and selecting the right niche. If you are selling the exact same products that everyone else carries, it will be hard to avoid a price war. But if you sell items that carry an ambiguous price tag, it’s much easier to hold firm on price.

In terms of our situation, we’ll just have to see how it plays out. But I’m confident that we will continue to sell product even if our prices are higher in some cases. Instead of slashing prices, we’re going to focus on making our store a better place to shop.

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18 thoughts on “What To Do If A Competing Business Undercuts You In Price”

  1. This is a great post, and a great example of how any business should act when confronted with a problem (or potential problem).

    The same goes for service or the consulting industry. Focus on your service and what makes you better, or more unique. You’re sticking with your guns and that’s a great decision.

    Sweeeet!

    1. @torbjorn
      Thanks! My wife and I’s first instinct was to slash prices to match our competitors but when we finally calmed down, we decided to evaluate the situation further and this article was what we came up with.

  2. I think you are doing the right thing! Using this competitor’s move as an impetus to review and strengthen your product line is excellent. Also call as many of your key customers as possible and get feedback. You should be doing this regularly but with this change you might get some new ideas to further increase the value of your offerings.

    James Todd
    Publisher: BuildMySiteforFree.com

    1. @James
      Yeah, this competitor really fired us up. We really should be doing competitive analysis more often and eliciting more feedback from customers. We’ll see how everything plays out in a few months.

  3. Steve, this is actually great for your business. It keeps you on your toes and you are not resting on your laurels. It’s also great to see that you are keeping tabs on your competitors as this is a great way to get new ideas for your own business. I think quality and customer service always win the day so I think you are doing the right thing by keeping your prices the same.

    1. @Steven
      Thanks for the vote of confidence. I’m pretty sure that everything will turn out okay. After all, I’m sure this competitor has been undercutting our prices for some time now and I only just noticed recently.

      @Carly
      Glad the article helped. How has greenandchic been doing lately?

  4. I really needed to read this. I was getting discouraged when I’ve noticed my competitors with lower prices and cheaper shipping. I then realized I need to find ways to stand out from the crowd. I have a few ideas and cant wait to implement them!

  5. Thanks Steve! Its growing slow and steady. There was a lot I had to learn in 2009 (especially SEO), but my efforts are paying off now. Its still not where I want it to be – not anywhere close, but at least improvements are seen every month.

  6. This is very wise, a knee jerk reaction is not the best course of action. Im a bit of a tinkerer myself and like to try things but they are always weighed against risk. If you already have a solid base of customers there is no reason to think they will suddenly move away, and the argument of quality over quanity is a good one as well.

    First and foremost you have to understand who your customer is, the rest of the decisions are much easier one you are at ease with that.

  7. I am a big believer in creating your own products. That way you can name your own price for the products that you have created.

    I also strongly believe that you should test everything. That includes testing your product prices and sales material.

    Selling informational products is great because once you have created the informational product, a website for selling the information, optimized your website for the search engines (SEO), and have a way to deliver the information immediately to the buyer of the informational product you are basically set up to run on auto pilot.

    Your only job after you have set everything up properly is to market your product to your target market. This may sound simple but it does take time and effort.

    1. @Jim
      Well said and I don’t think anyone would disagree. Creating your own products is probably the best way to go when starting a business but may not be a good fit for everyone. The challenges of marketing your own product are greater than with a traditional store but the earning potential is incredible if you can pull it off.

  8. Hi Steve, I found your blog about a week after the launch of our (my wife’s and mine) online store and I have been hooked to your brilliant blog ever since.

    Here’s a question I’m struggling with at the moment: Our sales in the first month of selling baby care products (on an ecommerce portal in Taiwan) were rather disappointing (only a handful of orders and only one of them came directly through the website). And after having optimized our web content throughout the first month, we’ve come to the conclusion that the lack of sales is primarily due to (1) unfamiliarity of consumers with the brand we’re selling (2) our prices which are sometimes significantly higher than similar competing products and, to a lesser degree, (3) low traffic.

    In our views, the main problem is our prices, which currently range between US$16 and $23 per item. The main competing brand is selling similar (though in our opinion slightly inferior) products for as much as $3-6 cheaper than us. It seems there’s no way around reducing our prices to a level closer to the competing brand and we’ve decided to take this as a next step.

    Steve, do you think it’s better to slash all prices all at once or go product by product over a period of time and also make slashes in installments of $2 each time (note that so far we only have a dozen different products in our store).

    Also, do you think it is advisable to keep a low profile and keep silent about the price changes or is this a good time to promote the price reduction to everyone and use it for marketing purposes? (I think the drawback could be that our credibility could suffer when potential buyers see that we were initially priced too high.)

    As you can see, I’m a total noob, so I’d be thrilled to hear your thoughts on these newbie questions. Thx a lot!

    1. Hi Hans
      I don’t think that you are at the point where you can definitively know that higher prices is your problem. In our store, we consistently charge higher prices for some of our goods and they still sell. More likely than not, you have a traffic problem. If no one is visiting your shop, it’s easy to come to the conclusion that your prices are too high. Have you tried driving targeted paid traffic to your site to see what your conversions look like?

  9. Thanks for your reply, Steve. I agree with your assessment. After doing a more in-depth price analysis and comparison with competing products, I’ve realized that we were already priced quite competitively (now I wish I had done that before posting here, lol). I did make a few adjustments nonetheless just to remove any doubts in my mind about our pricing, and also to give potential buyers additional incentive to try out our products. It’s clear to me now that traffic and marketing are at the heart of the issue. We’ll be trying to leverage a FB Page in combination with my wife’s blog for more traffic. Thanks again for commenting. :-)

  10. Magie says:

    Hello,
    I have a different problem. I have a service business (20 yrs) and recently one of MY accounts has opened a competing business, charging less, inferior product, copied my business name but added one extra word, copied all my forms tweaking them a bit and blanketing my area of business.

    A few times I have to give her property that belongs to “my” accounts that I store so I must talk or email with her. She is overly sweet. When she asks for something it’s always followed by “have a great day!” w/ a smily face – or “wishing you the best!”. It makes me sick. I’m always short w/her but professional.

    I feel like she’s walking all over me. I only lost a couple accts. and a couple have come back but this is driving me crazy! I want to unload on her – would this be a big mistake?

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