4 strategies to deal with low prices from competitors?

First of all, do low prices from competitors actually pose a problem? And if so, how to deal with them? In this article, we’ll discuss four strategies that can help you address this issue. Read on to find out more.

Low prices from competitors - table of contents

4 strategies for dealing with low prices

Competitors’ low prices aren’t a problem per se. After all, price is just one element of a product or service. One element. There are other elements. They make up what is called a value proposition. And that value proposition, in simple terms, answers the question of how our offer affects the customer’s life – what it brings to them. Only when we know the answer can we price our offering attractively.

And an attractive price doesn’t necessarily mean it’s low. The price is attractive when, firstly, it reflects the content of the product or service, and secondly, it is tailored to the preferences and profile of a specific customer segment. Otherwise, it will always be too high.

The issue arises when our competitors offer the same product at a lower price. However, the low price of our rivals may only hide a more significant problem, namely, the problem related to our product. Let’s delve into that.

Strategy #1. Work on your value proposition

To understand what our product or service adds to the customer’s life, think about the Unique Selling Proposition (USP), and what sets you apart—something in marketing known as the point of difference.

Value proposition

Simply put, a value proposition is a set of benefits that the customer receives with a product or service. To define it, you need to take a holistic look at your business. Here, a helpful tool is the Business Model Canvas. It’s a template consisting of nine fields, each representing crucial areas in the company.

This refers to:

Customer segments: To whom are you targeting your offer?
Value propositions: What value are you generating for customers?
Channels: What channels are you using to deliver the product or service to the market?
Customer relationships: How do you plan to acquire and retain your customers?
Revenue streams: How will you generate revenue for your business?
Key resources: What resources do you need to deliver value to the market?
Key activities: What activities do you need to undertake for customers to receive the highest value?
Key partners: Who do you need to run the business?
Cost structure: What are the major costs incurred by your company?

By answering the above questions and filling out the business model canvas, you are essentially planning your business and determining its structure. You will also see how a change in one area affects the entire business and therefore the value proposition. This tool can also help you analyze the competition and understand what your market rivals are actually doing that makes customers choose them. And you should conduct such an analysis because of the point of difference.

Point of difference

These are basically the standout features—those things that set our offer and value proposition apart from what our competitors bring to the table. But remember, understanding the Point of Difference (POD) goes hand in hand with recognizing Points of Parity (POP)—the common ground we share with others in the market.

The purpose of Points of Parity is to meet customer expectations regarding their perceptions of a particular product segment. Let’s say every online store in Poland offers two types of payment – electronic payments in advance and cash on delivery. That’s a certain standard. So, if you run an online store, you need to offer these two payment methods to align with the standard and not fall behind.

On the other hand, Points of Difference, or differentiating points, are meant to set you apart from the competition. If only a few online stores in Poland offer deferred payments, and you implement such a feature, you can consider it as your Point of Difference (POD).

USP, or Unique Selling Proposition

The USP (Unique Selling Proposition) defines what sets us apart from the competition and what makes us better. In a way, we see the USP as a collection of various differentiating points. Their combination gives our product or service the potential to stick in the minds of prospective consumers and persuade them to make a purchase. At the same time, the USP should be a unique feature that is difficult for competitors to imitate.

That’s why we can say that the USP is not a temporary promotion, for example, “15% discount until the end…” or a specific commercial offer like “Free delivery on purchases over X USD.” All these elements are easy to observe and then copy.

An unconventional USP could be marketing communication and brand narrative through the founder’s story – typically, such stories are unique. The same goes for a personal brand. If the company founder showcases their personality online, becoming the face of the brand, customers may find it easier to identify with the product and trust the organization’s competencies. The founder’s face is impossible to replicate.

Strategy #2. Differentiate customer segments

When we talk about the expansion of a company, geographic expansion often comes to mind – today, we operate in Poland, and tomorrow also in Germany and the United Kingdom. However, this is just one direction of expansion that we can pursue.

We can just as well expand our operations through vertical integration, providing customers with additional services, or enter a new market segment – this too can be an effective strategy for competing with the low prices of our rivals.

By a new market segment, we mean expanding your business into a new, previously untargeted customer segment. This means that if you have been offering your product exclusively to micro-enterprises so far, you may now want to offer it to small and medium-sized businesses. You can also transition from the B2B segment to the B2C segment. Additionally, you can create additional service packages available at different prices.

Let’s say you are creating an internet monitoring tool in a SaaS model. You and your competitor offer two packages with similar feature sets but different prices, with the competitor having the advantage. Instead of lowering the price, you can enter the market with a third package and further differentiate yourself from the competitor. This way, you will address the needs of different users with different budgets.

In each case, it’s essential to remember that different customer segments have different needs, and consequently, different values resonate with them. Therefore, it is worthwhile to revisit the previously mentioned business model canvas and consider what will constitute a value proposition for this specific customer segment.

Strategy #3. Price yourself based on value

Another strategy for competing with low prices is based on pricing strategy. Prices can be determined based on competitor prices, the costs of producing the product, or based on the value the customer receives. The third approach is called value-based pricing – it is worth considering this method.

It is based on determining the value that the product or service adds to the customer’s life. To determine the price accurately, at least two steps need to be taken.

Firstly, it’s crucial to grasp what holds value for the customer. Engaging in conversations with customers is a great way to achieve this. By asking the right questions, you can uncover why they opted for our offering and what aspects they value the most.
Secondly, it’s important to figure out how much customers are willing to pay for what we offer. The best way to do this is by putting the product on the market and running A/B tests with different price points, both higher and lower.

Strategy #4. Continuously monitor prices

Prices don’t stay the same throughout a product’s entire life cycle. They fluctuate. It’s wise to embrace this and not wait for external cues to update your pricing. Turning this into a regular process, like checking your prices every quarter, is a good approach.

That way, we can either increase prices or tweak the product or service to better fit the current market conditions. Now, when it comes to raising prices, it’s crucial to know how to do it smoothly and confidently. Here’s a tip we came across on YouTube from Dan Martell, the founder of SaaS Academy – it’s called the 10-5-20 rule.

What is the 10-5-20 rule? Let’s see:

10x: When customers purchase a product or service, they should feel like they’re getting 10 times more value than what’s listed as the price.

5%: You can gradually increase the price for new customers by this percentage until…

20%: …20% of them start to think twice or decide not to make the purchase. If you present a higher price to ten customers, and eight go for it while two pass, you’ve identified a new, higher price that works.

Low prices – summary

Keep in mind that low prices from competitors alone may not necessarily be a threat to us. It’s a different story when it comes to higher-quality products and services. So, rather than thinking about lowering prices, it’s more effective to explore ways to offer customers more value.

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Author: Adam Sawicki
Owner and Editor-in-Chief of Rebiznes.pl, a website with news, interviews, and guides for solo entrepreneurs and online creators. In media since 2014.
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