It’s not surprising many businesses drop their prices to compete with a rival – especially one who’s started discounting to get more sales.
If you’re tempted, consider where you want to sit in the market, not just how your prices compare.
A bit of thought could save your business from making a costly mistake.
Panicking and slashing prices to keep up with competitors can backfire.
You can not only hurt your profit margins but also damage your brand. Would Rolls Royce ever cut prices just to sell a few more cars?
It’s OK if you’re aiming to be a cheap, high-volume supplier in the market. Your prices will reflect that. But if you position your business as a premium, high-value brand, cutting prices might not help.
Be clear on where your firm sits. Then look at what your competitors are doing. If they’re cutting prices they might be trying to reposition themselves as a cut-price business. Understanding their moves helps you plan yours.
Profits
Important in any strategy is to figure out how much profit you need, not just to stay afloat, but to grow. Businesses need to make money, so your pricing has to support that.
Sometimes, raising your prices might actually be smarter, especially if you’re adding value. An example is when McDonald’s opened a store close to a shop selling hamburgers. The other owner doubled his prices and lost about 10% of his customers. But by doubling his price, he convinced people his product was so much better.
So don’t treat pricing as a reaction, but as a statement.
Remember, pricing on any part of the scale determines how you are perceived.
