There’s no doubt that price is important for businesses to succeed. Customers are trained to look for the lowest prices they can find. This attitude has impacted most industries, and there’s no sign the trend is slowing down. Companies that compete on price need active strategies to ensure they actually are cheaper than their competition. If they slack off, they’ll find they quickly fall behind the curve. Some firms will use more than one strategy at a time, depending on their vertical.
Stay Ahead of Your Competitors
Price may be King, but it’s not the only factor that makes people buy. They also expect high levels of customer service and great product quality. The companies that get all these moving parts working together correctly are the leaders in their fields. Make no mistake, this is not the result of luck. Companies that are winning in competition follow competitive strategies that make every aspect of their business the best it can be. They need to constantly monitor feedback from their own customers at the same time they aggressively track what their competitors are up to. If it sounds like a full-time job, it is. The world of business no longer sleeps. Those who get tired and lose their energy for the battle quickly fall behind.
Setting Prices to Win
Price is a big deal for customers, so competitive pricing strategies must be followed. Companies choose from four basic strategies for the price. Competitive pricing is very popular. They essentially undercut the competition and compete mainly on items where they have the lowest price. When they offer products that are essentially the same as others do, and there’s very little to differentiate about the vendors in customer’s minds, they slash the price so that it’s the lowest one around. Businesses in any sector recognise one vendor as the market leader. This leader dictates prices. When they set it low, the other vendors follow suit. This is the reason you’ll generally see prices that are about the same from different vendors. Consumers keep their eyes out for the lowest price and get in the habit of buying from the vendor who consistently delivers deals. The way to become the market leader is to consistently offer low prices and match it with amazing service. Those who fail to execute even one part of a strategy fall behind. Customers are smarter than ever and they don’t want to overpay.
Watch Out for Drawbacks
There are a few major drawbacks when it comes to using a competitive price strategy. Small businesses can run into a lot of troubles using this tactic. If they don’t have the sufficient buying power, they will be unable to make enough profits to stay afloat. Larger enterprises that have total control of their supply chains are ruthless with their procurement processes. They constantly push prices down by negotiating with vendors. Vendors are willing to reduce prices in return for larger guaranteed orders. Small companies that attempt low price strategies do not have this same kind of clout. They are not guaranteed to have the lowest price from a vendor, so they’re in danger of having to lose money if the market leader cuts prices substantially. No firm can last long losing money on sales. Competing on price is a decent idea, but execution matters most. Once you begin this war, you can’t just quit. You’re dealing with firms who have built their success on ruthless exploitation of pricing. You’ll have to follow their lead and stay the course.
Status Quo Is an Option
Staying in the middle of the road is always an option for pricing. If your firm does a good job of service and offers a nice selection of merchandise, you probably don’t have to be the low-cost leader. Leave that up to the market leader who has achieved scale. It’s always harder for smaller firms to compete in markets that are dominated by big players, but it’s not impossible. They need to create a core brand that is identifiable and differentiated from their competitors. Some marketers believe that brand is more important than pricing. Status quo pricing is easy to implement. Secret shoppers keep tabs on the prices offered by competitors and then the firm sets prices accordingly. Companies who follow this strategy will not lose on selling items. Instead, they’ll make a profit and they’ll appeal to all but the most cost-conscious customers.
Charging Less Is No Guarantee
When a firm starts out with low prices, they are generally going to have to stick to that strategy. Customers who come in because your prices are low won’t stick around for price increases. That makes low prices a tough strategy for new firms to follow. Many small businesses attempt to have the lowest price because they think it will attract lots of new customers quickly. Many times it does not. Customers are sceptical of new companies with low prices. They aren’t sure the firm will be around for a year. The pricing may even strike them as desperate. Most firms are better off concentrating on value. The value is a combination of price, service, and quality. You may not want to carry the cheapest items, especially if others have them. It may be better to carry items for vendors that cost slightly more but offer more features. Then you can sell them to customers based on them having a higher value. You can offer a longer warranty or better terms to complete the equation.
Pricing is part of your overall marketing strategy. Value encompasses pricing and other important factors to make your firm truly competitive in the marketplace. Finding the right balance has never been easy. In fact, some might say that’s the biggest challenge in business. Your customers need to be happy and your company needs to earn a profit. That mix, once achieved, will propel your firm forward to greater heights. Your competition will never know what hit them when you are operating on all cylinders.