Do You Have the Right Strategy for Dealing with Price Competition?

This is a problem that never goes away. It’s also a problem that comes in many different shapes and colors. If you don’t understand the nature of the price competition you face, your odds of selecting the wrong strategy are high.

So, what are the flavors and shapes of price competition?  Let’s explore them from least to most damaging:

Click on the highlighed links below to learn more about each type of price competition.

1.  Bid pricing — most distributors and many manufacturers face bid pricing on a regular basis. The customer is bidding the job and you must give a price that will win – sometimes it’s a low price and sometimes you can command a slight premium. This is standard day-to-day business and deserves a sophisticated bid tracking process to help you make the best decisions.
2. Competitive offerings – you always have competition, but seldom is it identical competition. There is some level of differentiation between you and competitors. This pricing strategy is all about segmentation, the ability to segment your market into customers with different value propositions and to be able to execute your sales strategies effectively against each segment.
3. Performance buyers – there is a segment of the market that includes performance buyers. The definition of a performance buyer is a customer who will give up some dimension of performance for a lower price – or pay more for superior performance. This could be product performance or service performance. One example of this is in construction equipment where different levels of track quality are offered for bulldozers. Some manufactures offer aftermarket tracks that are the same as the original equipment – with the same expected life span. Others will offer track with half the life span at about half the price. These are both viable product offerings, as customers sometimes don’t need to buy a replacement track that will last as long as the original tracks. Manufacturers usually address these segments with good, better, best product / service options.
4. Low quality buyers – these are buyers who are willing to give up on quality – which we define as B-10 life – the amount of time before 10% of the products fail. They are willing to take the risk of failure for a lower price. Our advice to clients is – if you have a quality reputation – don’t go there. These are not customers you want.
5. Low-cost will fitters – these are companies that make copies of your products, potentially identical copies, and sell them at a lower price. These companies can have lower cost structures and can always sell below you. This is the most dangerous market of all. You can lower your prices – but if you have to lower prices across the board – the pain for you will be far greater than for them and they may still be making money while you may be bleeding red ink. The most successful strategies here are: (1) find ways to increase the differentiation of your product or service to shrink the size of the segment that find value in the will fit product or (2) acquire competitors so that you will still have a large enough “value” market to go after.

These five types of price competition are pretty obvious when you see them on paper, but much harder to discern and address in the real world. If you need help fighting your price competition, give us a call.

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