Mar 21, 2022 • Podcast

What if my competitor significantly cuts their price?

Paul addresses how to manage cheap competitors that drastically undercut your price.

Show Notes

Throw some shade: “Doesn’t that pricing scare you at all? What are they leaving out? What are they missing?”

Look at your cheap competitor’s customer base. Do you really want to focus on that type of customer?

Move the customer past price and point out the other criteria that is important to them.

What other concessions, besides price, can you make?

Be transparent with your costs and appeal to the customer’s sense of fairness.

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Article mentioned: If You Want to Charge Higher Prices, Share Your Costs!


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What if my competitor significantly cuts their price?

(Transcribed from podcast)

We’ve had a lot of questions coming in about pricing and competitors offering cheaper alternatives. We’re going to stick with that theme today. I had a salesperson who emailed me after I sent out one of my newsletter pieces, and he said, “You know, Paul, I’m having some issues with pricing.” He’s got competitors that are undercutting his price to the point where he doesn’t even know how they can compete at those prices. He said, “Their price is lower than our costs for some of these items.” And I know that many of you have experienced this in sales. It’s frustrating. It’s mind boggling. We just don’t know how that happens. So on today’s episode, we’re going to talk about how we manage those cheap competitors that drastically, ridiculously, undercut our price. That’s what we’re going to focus on in today’s show.

Before we get into answering that question, just a reminder, make sure you pick up your copy of Selling Through Tough Times. It’s available on Amazon, Barnes & Noble, Chapters—wherever you get your books, you can find it. In the book, we talk a lot about pricing, actually. We dive into the value formula. We uncover why buyers are more price-sensitive during tough times. So, check that out.

But let’s get back to that question. Your competition is drastically undercutting your price. It’s so annoying. It’s so frustrating. And the more commoditized your product, the more frustrating it’s going to be. And here’s why I say that. You know, when you’re selling a more commoditized type product, prices tend to be roughly the same. And when I say that, it’s because people are dealing with the common cost structure. You know, people are having similar operating expenses. And so, it’s even more frustrating because you wonder how on earth can they charge those prices? Let’s get into it. I’m going to give you guys seven tips today—seven tips to help you manage those cheap competitors that are drastically undercutting your price.

Number one—first and foremost, use the competitive boomerang. When a buyer tells you, “Hey, here’s where your competition is at,” number one, I would say, “Wow, given the difference in their price and our price, if I were you, I would be scared. I would be curious; what are they leaving out? What are they missing? How could they possibly charge that price?” I would throw some concern out there and maybe even say, “Hey, doesn’t that pricing scare you at all? I mean, considering how low it is? Really, I would truthfully look into that.” So do the competitive boomerang. That’s going to give them a new way of thinking about that price.

You know, people look at low prices and they think, “Oh, wow. This is a great deal,” but you’ve got to remember, a cheap price, but a company that fails to deliver when it matters, is really the most expensive price. So, give that competitive boomerang a chance there. You want to be very tactical how you say this, but I remember one seller who was dealing with a competitor who was charging prices lower than the cost that they had to sell that product. And he finally said to a customer who kept saying, “Hey, their prices are so low. They’re so low. They’re so low.” He finally said to that customer, “Look, prices are always the lowest right before you go out of business.” And sure enough, a few months later, that company went out of business—the supplier that was promising all those cheap prices. So, it’s important to use that competitive boomerang as a way to shift that buyer’s mind away from price.

Tip number two: we want to check the customer base of the cheap supplier, or the cheap provider, or the cheaper alternative, whatever it may be. Take a look at the customer base. That customer base is typically going to be the price shoppers in your industry. And you’ve got to ask yourself, “Okay, the customer that is telling me they can get this at a much cheaper price than we’re selling, are they really a price shopper or they just taking advantage of a buying opportunity?” And if it turns out that they are a price shopper, you’ve got to ask yourself, “Okay, do I really want to focus on this type of business? Wouldn’t my energy be better focused on other opportunities that are more value focused?”

But if this one instance, if you say, “No, they’re a value type customer, but they’re just taking advantage of a buying opportunity,” then we almost have to let the short-term sting not outweigh the long-term gain that we’re going to have with this particular customer. So just be aware of the difference between the two.

Number three: ask yourself, “Other than price, what is your buying criteria?” Talk to your customer, and when they say, “Hey, I can get this so much cheaper from your competitor,” ask them, “What other criteria is important to you when you make this decision?” And it’s not like we’re trying to completely change their mind and saying, “Hey, we’re worth 30% more.” But what we’re trying to do is just get the focus off of price. Even if it’s temporary, we want to get the focus off of price. So ask that customer, “Hey, other than price, what’s going to be important to you,” and get them talking and thinking in terms of value. That’s going to be a way to help—number one—protect the business you already have, but it’s a way to slowly change the conversation. We’re changing the conversation away from price.

And once we get them thinking about value and other things than just price, then we can move to tip number four. And that question is, “What other concessions can you make besides price?” And maybe this means delivery, complimentary training. Maybe it’s extended warranties. Some people call this funny money. What are the other concessions that we can make other than price? Maybe it’s more favorable terms—giving them 60-day terms instead of 30. Whatever it is, look at other concessions you can make that can help sweeten the deal. Especially if cashflow is a concern right now. Think about how you can extend those terms. So that’s tip number four, ask yourself, “What other concessions can we make besides price?”

Tip number five: what add-on products can you sell? You’ve got to think about this. Sometimes companies lead with a specific product. They’re going to undercut that price just so they can get the total package. And so, if that’s what’s really going on, use this as an opportunity to say to the customer, “Look, what is the total package that you’re looking for on this project? Let’s look at that versus just this one product.” You may realize that the total package is a much better opportunity than just that one specific product that the customer is getting the cheaper price for. So look for other products you can pile on to make a better overall, more profitable package for that interaction.

So let’s move on to tip number six: ask for a longer commitment. When you make any sort of concession, even if it’s just more favorable terms or you’re looking to broaden the package, add more on—extend their commitment period. Ask for longer commitment. And what you’re doing is you’re securing the business. You’re protecting it from this happening again just a few months down the road. The longer the commitment, the more you’re building a partner as well. And as you partner with your customer, you’re going to look for ways to create more value. And by doing that, price will become less of an issue.

Finally, number seven—and this relates to an article I recently put together. We’ll have a link to the article on this show-notes page. It’s important to be transparent with your cost. And here’s why I say that. You know, we don’t need to open up the books and then show them how much money we’re making and all that, but it’s important that we’re transparent with our cost because it helps build in that perceived sense of fairness. You know, there’s a great article—I mentioned it in the piece that I put together—but it was in the Wall Street Journal. The author, Dan Ariely, highlights how cost structure can influence people’s perception of fairness. He didn’t necessarily say it that way, but it was something along those lines. He basically said, when people are made aware of what something costs, they view the price in a different way more in terms of fairness, what it should be. And when people are made aware of what it costs you to serve them, they’re more willing to pay the price. So being transparent with your costs is a good thing in the sense that it helps build that perceived sense of fairness.

So doing all these things, again, these seven tips, can help you combat some of those cheap competitors that you are going to continue to run into.

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