Blogs

Is someone undercutting your prices?

Even the most loyal, long-term customers can have their heads turned by a good deal, and if a new competitor shows up offering lower prices, that loyalty can quickly go out the window.

No matter how long someone has bought from you, price will almost always come above all else in business. So, what should you do if someone is undercutting your prices?

Take action

If a competitor has opened up and charging less than you for the same products or services, don’t take it lying down. Even if you are confident that your existing customers won’t make the switch, by not doing something about it, you could be costing yourself new business.

Keeping a competitive edge over other companies in your sector is absolutely essential to any business. Of course, if you believe the quality of your goods is enough alone to make your customers carry on choosing you over a cheaper option, then you may not feel the need to make any pricing changes.

But, if not, you’ll need to start thinking about what you can do to make your pricelist more attractive.

If you are willing to change your prices…

As a consumer yourself, you’ll understand the importance of shopping around for the best price. We all do it and your clients are no different.

The first thing you should do if you know someone is undercutting your prices is find out exactly how much they’re charging for the same services as you provide. A quick search on their website or even calling the company anonymously and asking should turn up a pricelist rather easily.

Price matching

Once you have the numbers, start comparing them to your own. Ask yourself how much less they are charging than you and whether or not their pricing seems viable for your own company if you were to charge the same.

Supermarkets are well known for this strategy as many even feature adverts publicly undercutting a competitor’s prices. Almost all of the big supermarket brands will also offer a ‘price match guarantee’ should the customer find a product cheaper somewhere else, meaning they don’t feel the need to switch stores to get better deals.

If you were to change your prices to match or undercut your competitor, how would it affect the viability of your business?

Say you sell a designer t-shirt for £100, and a competitor pops up offering the same shirt for £90. If you reduced the income from your t-shirt sales by 10% on both your cashflow and your profit and loss forecasts, would you still be able to turn a profit and keep enough money in the business so that it stays afloat?

Make sure you think carefully before you change your prices, though. Price matching has a habit of causing brands to continually drop their prices in order to “beat” each other. These price wars can get dirty and the last thing you want is to bring prices so low you can’t pay your overheads.

Lower prices also tend to result in higher demand which may cause issues if you do not have the stock, cash for stock, or the manpower in place to deal with this.

It is easy to lower prices, but much more difficult to raise them up again. Even if you win your price war and your competitor gives up, it is very unlikely your customers will want to pay your original price again.

Cluster pricing and discounts

A buy-one-get-one-free or three-for-two deal will always catch a person’s eye. Whilst we all know that these deals lead us to spend more and purchase more than we initially planned to, knowing you’ve got a good deal will always be more important.

One of the sectors most known for offers like this is the fast food industry. Pizza delivery restaurants may sell a single pizza for around £17 – which many of us would not be happy to pay. But, when ordered with a second pizza using the right discount code, voucher or during ‘happy hour’, you’ll notice the price tends to sit at around £20 for both.

This is a great pricing strategy that leads customers to feel like they’ve saved money even though they have spent more than they had planned.

If you notice your customers tend to order their products in popular combinations, you may choose to make a deal out of them using a time limited voucher. Whilst this method of pricing may lower your unit margins, your average order values will almost definitely increase – keeping customers coming your way.

If you don’t want to change your prices…

If you’re not willing to drop your own prices in order to beat another company, there are still things you can do to keep your business’ pricelist competitive.

Free extras

In some cases, adding icing to the cake is enough to keep customers coming back even if there is something cheaper going elsewhere. Making your customer feel like they have got a good deal is the key to success here.

And, even if you don’t want to permanently offer these added bonuses, simply adding a time limit to them can make the customer feel even luckier for finding you.

For example, you may choose to offer free delivery throughout December to coincide with Christmas orders. This tempts in both those looking to save money and those who are unhappy with the additional charges thrown onto their order by your competitor.

If your company sells refrigerators for £200, but another store offers the same ones for £180, a ‘free delivery’ extra means customers may be willing to pay more rather than arrange and pay for delivery themselves.

Keeping your overheads down

Having a competitor that undercuts your prices can make a significant dent in your business’ profits and turnover. And, whilst you may be focusing more on increasing your sales, keeping your outgoings under control is absolutely critical in keeping your company running in the meantime.

Try to get your costs lowered with your current suppliers, or shop around to see if you could be paying less for utilities, processing, rent or other services.

Whether you plan on changing your prices or not, renegotiating your deals with suppliers could greatly reduce your annual overheads; meaning you have more money left over at the end of the year to put into marketing, new promotional offers, and much more.

If a competitor is undercutting your prices, you need to act fast. Speak to your accountant without delay to get your action plan in motion. For any advice on increasing your profits or whether you can afford to offer a new promotion, talk to the TWP team today on 01932 704 700 or email service@twpaccounting.co.uk.

Leave a Reply