Predatory Pricing in a Competitive Market

During our recent TeleSeminar on Handling the (Dreaded) Price Objection, I was asked a good question by one of the attendees.  How do you handle situations where your main competitor is always undercutting you by 20 percent or more?

It was a dynamite question and one that might be asked by many salespeople who are in highly competitive markets. Unfortunately, it’s also a question for which there is no easy or single answer, but here are some thoughts for you.

My first thought is, if this is such a competitive market, how come the price difference is so big? Competition usually drives prices down to their lowest acceptable levels, which means most competitors’ prices will be within 5 to 10 percent of one another. Any salesperson worth his or her salt can usually handle that kind of price difference if they know what they are doing. That doesn’t mean you always get the business; it means you know how to handle the price objection properly.

If the price difference is greater than that, something else is going on. Is your competitor having a price sale? Are they going out of business and this is their last gasp? Have they simply stripped their costs to the bone in an attempt to be the price leader? Will they even be in business a year from now if they hold those prices?

It might be that your competition is trying to buy market share, in which case pricing decisions are being made at a management level well beyond that of a mere salesperson, and you’re now stuck between a rock and a hard place when you’re up against this competitor. Big price differences in highly competitive markets means that something is going on, and you may not always be able to figure it out.

SWOT the Competition

My second thought is, why are your prices what they are? What do you, your product/service, or your company, offer that justifies your pricing? Do some market research. Do a competitive SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) to find out where you stand. It’s not easy to do but it’s usually well worth the exercise. If you don’t believe in, or can’t justify your price, your customers won’t be able to either.

Another exercise to go through is to ask yourself, “If I had to lower my prices, what could I do to reduce cost, quality, capability, services, overhead, etc.” The result of this exercise often gives you insights into how your competition can have a lower price. The key is to determine how your competitor can have a lower price (and still stay in business). You’ll also uncover things you do or offer that can now be used to justify your price.

Walk in Your Customer’s Shoes

Put yourself in your customer’s shoes and compare what you are offering with what your competitor is offering. If you were the customer, which would you choose? If you honestly wouldn’t choose your solution, why should the customer? If you would choose your solution over the competition’s, why? The answer to that question is what you need to articulate to your customer.

Looking at what you’re offering from the customer’s point of view is a powerful selling tool that allows you to effectively tell the customer why he should buy. If you don’t know why the customer should buy from you, neither will he and he’ll end up buying from your competitor.

Sell the Right Thing

Here’s a third thought for you. Maybe the customer isn’t comparing apples with apples. If they are comparing apples with apples, maybe you’re polishing your apples too much before you take them to market and that’s adding to the cost (and to your price).

Here’s an example of what I mean. Let’s assume your customer is buying a vehicle. Now, both a Chevy and a Cadillac are cars, but they’re obviously different classes of cars. So, while the customer is comparing apples with apples (a car with a car), they aren’t comparing a ton of other features such as workmanship, options, after-sale service, etc.

That may not be the best example, but the point is, maybe your customer is looking for a Chevy and you’re trying to sell a Cadillac. Just a thought. This is usually the result of not properly qualifying the prospect as to what he really wants. It can also happen when you have fallen into the trap of selling what you want to sell, and not what the customer wants to buy.

What’s the Difference?

Remember, if the customer can’t tell the difference between you and your product/service and that of your competition, then he’s going to make his purchase decision on price and probably price alone.

Think about it for a moment. If you couldn’t tell the difference between two similar products, or the difference didn’t matter, wouldn’t you make your buying decision based on the price? Well, your customers are going to do the same thing.