In highly competitive industries, companies have to find unique ways to stand out. They must discover points of differentiation, or they simply blend in with everyone else.
Often enough, price is the best place to stand out. If you can offer a lower price than the competition, you stand a much better chance of attracting customer to your products or service.
This approach has always been the case in mass retail — look at brands like Walmart and Costco — but it’s also true in more specialized industries such as healthcare and technology.
How Your Business Can Compete on Price
Competing on price is rarely as simple, however, as lowering your price below that of your closest competitor and then sitting back and enjoying the customers and profits roll in. It’s usually a more complex process that includes careful strategizing, execution, and monitoring.
Such being the case, here are some ways your firm can successfully compete on price.
1. Offer a Second “Reason to Believe”
Any time you sell something to a customer, you have to give him or her a reason to believe in your product. Price alone isn’t enough.
If the fact that you offer the lowest price on the market is the only point of value, you’re only going to attract the low-hanging fruit. There has to be at least one more reason to believe, if not more.
POC Medical Systems provides an excellent example. This company developed a highly innovative cancer detection technology that costs less than a thousand dollars for the provider and just a few bucks for the patient (compared to current devices that cost providers $30,000 and patients $1,500).
But that’s not all. In addition to being the low-cost leader in this niche, POC offers the added value of faster detection times. A traditional exam takes five to ten days to get results, but POC’s specialized application renders results almost immediately.
The moral here is: If you’re going to compete on price, make sure you’re offering something else to create customer buy-in.
2. Offer Less at a Lower Price
Sometimes there may be an opportunity for a business to offer something that’s smaller or lower in quality for a lesser price than the industry standard. Think about store brands here.
Most people know that store-brand products aren’t the same quality as premium-name brands, but a fair number of customers buy them anyway. Why?
Because the price is substantially lower and the customer doesn’t necessarily need the level of quality guaranteed by the premium brand. Entrepreneur Paul B. Brown provides a good example of this:
“The competition sells tires that last 50,000 miles for $100 a piece. You sell a tire that will last only 25,000 miles, 50 percent as long, for $40, or some 60 percent cheaper. You are offering less value at a lower price.”
3. Deliver Superb Customer Service
Low-priced products tend to be accompanied by a popular notion that says: If a product is cheaper than the competition, the brand must be lousy. As such, expectations with regard to customer service are typically low.
One way to compete on low price and beat your competitors is to offer the type of white-glove customer service that is expected only of premium brands. If you can offer the lowest price and the best customer service, you have a good shot at running the competition out of business.
If you get to that point, you can then slowly inch your prices back up (assuming you retain the same level of customer service) and expand your profit margins.
4. Negotiate With Your Customers
If you run a B2B business, another solid strategy is to negotiate lower prices rather than discounting. But what does that mean?
“Negotiation is about give and take — on both sides,” business consultant Andy Coughlin says. “If you are going to negotiate away the price, decide what you want in return. For a lower price, you might ask the customer to commit to a larger order or get them to collect the goods themselves. That’s negotiation.”
Don’t Compete on Price Blindly
A lot of companies believe that they can just offer the lowest price and win. The solution is usually a lot more complicated than that, however. If you really want to compete on price, you need to devise a specific strategy.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.