HOW TO BEAT A LOWER-PRICED COMPETITOR

It’s every entrepreneur’s nightmare: a competitor enters your market with a similar product priced at a fraction of what you currently charge. You need a strategy for beating the low-ballers. So what’s the best way to proceed?

On the one hand, all you need to do is drop your prices below the competition, and buyers will beat a path to your door. On the other hand, this approach will land you in a price war, and there are no winners in a price war-only survivors.

Even if you manage to run your competitor out of business, chances are you may not have much of a business left when the battle is over. Here are some steps that can be taken without necessarily engaged in a price war:

REPOSITION, READJUST AND REALLOCATE

1.Lowering your prices = Changing manufacturing and distribution. To beat low-price competitors at their own game while also remaining profitable, you need to squeeze every last drop of inefficiency and cost from your manufacturing and distribution system.

2.Building a Uniquely better product = Changing design and engineering. Determine through market research what features or design will prompt customers to see your product as being unequivocally superior to the competition. Then build it.

3.Creating a hassle-free experience = Changing sales and marketing. Figure out why it’s difficult to buy and use your competitor’s product, and then make it easy to buy and use yours.

4. Taking ownership of the customer’s results = Changing customer support. Build a deep bench of experts who really understand your customer’s businesses. Example: Under Lou Gerstner, IBM hired and retained thousands of consultants, transforming the company from a mainframe computer vendor into a computing services provider.

PROMOTE THE NEW YOU

Once you’ve implemented all the operational changes required to reposition your product in the marketplace, it’s time to tell the world why your firm offers superior value. That means adopting a communication strategy that matches your market strategy, as follows:

1. If you offer low prices, mimic the competitor’s go-to-market strategy. Ensure that whenever a customer sees a competitor’s product, your product is right next to it- at a lower price.

2.If you build a uniquely better product, target your advertising. Reach customer groups that are most likely to believe your product is superior by selecting venues that the competition neglects. Example: Sony’s VAIO PC business advertises in lifestyle magazines to reach female buyers, who are more likely to appreciate the VAIO’s sleek design.

3. If you create a hassle-free experience, generate positive word of mouth. Make it easy for your customers to sell for you. Consider “Tell a friend” coupon or offer referral fees. Example: “Network Marketing” products are typically priced higher than store-bought items, but they are sold by neighbours (that’s the word of mouth).

4. If you take ownership of the customer’s results, create a presence as an industry insider. Get your sales consultants out to conferences, working groups, and industry-association meetings where they can work closely with decision makers and develop consulting opportunities. Support your consultants with a wealth of case studies and reference materials.