Why Not to Get Into a Price War With a Competitor

Why Not to Get Into a Price War With a Competitor

Why you shouldn't start World War III over 2%

By Tom Addleston-Towney

Sensible pricing is essential for business – but price wars can be disastrous, and usually mean that everybody loses.

When your competitor cuts the price of a product, you can’t ignore it. But if you simply undercut your competitors in an effort to gain market share, you could be triggering an unwinnable price war that will leave both you and your competitors struggling to stay afloat.

In a price war, each side keeps cutting their prices in ever-more desperate attempts to fight for customers. Profit margins can quickly vanish, meaning that products are being sold unsustainably on both sides. The perceived value of a product might also be lost due to the bargain pricing, making it harder to increase prices in the future. For customers, the price savings will be nice in the short term, but they’ll tire of frequent price changes and may view your business or product as low value and in many cases price is simply not the most important factor influencing their choice.

So the next time your competitor cuts their price – or you’re tempted to undercut them – think what other actions you could take instead. Quality can be hugely important for customers, and many of them will be happy to pay more for a product that’s better, faster, stronger, more durable, more attractive, more fashionable or more eco-friendly. You can make things easier for customers with extras like free delivery, gift wrapping or free gifts. Customers are also strongly influenced by good customer service.

Not only can these alternative approaches be more effective, they’re almost always less costly than engaging in a futile price war that could destroy your business.