How to Compete Without Cutting Your Price

That usually loses, and here is the arithmetic before the alternatives.

Why matching on price loses

Work out what a price cut costs you.

If you make 30% gross margin and cut prices by 10%, you have given away a third of your margin. To earn the same money you now need roughly 50% more volume.

Ask whether the price cut will produce 50% more volume. It almost never does.

Meanwhile your competitor can cut again, and whoever has more cash wins a war neither of you wanted.

What the low price competitor is usually doing

Three possibilities, and they need different responses.

They have lower costs. A genuinely different model. You cannot match this without changing your own model.

They are buying market share and losing money to do it. This ends. Wait, and do not damage your own margin in the meantime.

They are selling something different that looks similar from outside. Less scope, less experience, less service. The customer discovers this later.

Work out which before responding.

The four alternatives

1. Be specific about what is different.

Most businesses describe themselves in terms every competitor could also use. If your website could carry a competitor's name without changing a word, you have given the customer nothing to choose on except price.

2. Reduce the risk of choosing you.

Fixed fees rather than hourly. Clear scope. A named person. Response times you actually meet.

Buyers pay more for certainty than for quality, because certainty is visible before purchase and quality is not.

3. Serve a narrower group better.

Being the obvious choice for a specific type of customer beats being an option for everyone.

4. Compete on the total cost, not the price.

A cheaper supplier who needs managing, corrects errors and misses dates costs more than their invoice. Say so, specifically, with what the customer will not have to do.

Before any of that, check your own numbers

Gross margin by customer and by service line.

You may be competing for work you should let go. Losing an unprofitable customer to a competitor is not a loss.

Also compare your prices today against three years ago, and your costs over the same period. If prices moved less than costs, your problem is not the competitor.

What not to do

Do not match a price you cannot sustain to win work you will resent.

Do not discount quietly to keep a customer. It resets their expectation permanently and it spreads.

Do not compete on speed by cutting the work. In audit and accounting that shows up later, and it shows up as a professional problem rather than a commercial one.

The uncomfortable possibility

Sometimes the competitor is better and cheaper.

If that is true, the answer is to change what you do rather than to defend the current position with discounts. Discounting delays the reckoning at the cost of your margin.

Where we fit

We produce the margin and customer analysis that tells you which work is worth defending. Send your revenue by customer and service line.