What if you can’t afford to compete on price?

Published on August 31, 2012 What if you can’t afford to compete on price?

If you’re selling online against bigger companies that are better funded than you, how can you compete if they can afford to undercut you every step of the way?

Traditional wisdom would say that if you can offer better service then you’ll be able to convince potential buyers, through word of mouth and other means that you’re a better option instead of the lower price competitor. But in an online world where comparison shopping is rife even for high price items, only services, luxury and brand based businesses can really assert this same truth. For the rest of us what should you do?

One way to tackle this problem is to take a step away from the products and the prices and look at who you are selling to. Go back to the basics of what you are selling, and why:

• Who are the product(s) you sell for? Be very specific – are they old or young, are they male or female, do they have particular interests? What will the people who do buy your products have in common with each other?
• What is the basic problem that your products solve? For example you are selling car cleaning products, are you selling to people who want to keep their car clean because it gets dirty often (e.g., off-road drivers), people that just love their car and want to keep it extra clean, someone who doesn’t care much for their car but cleans it because necessary to do so to retain its value, someone who is passionate about their car because they love it like a child, taxi drivers who need to have a clean car for appearances, or people who rent/sell cars on a regular basis? How you position even the same products can vary considerably depending on who you are principally targeting.
• To what extent are your customers driven by convenience rather than cost? This can be a telling factor online as if you can make it more convenient to buy, they might be prepared to pay more for something – and even if the service isn’t as good.
• Also look at when your customers use their products? Is it associated with a particular daily/weekly/monthly/yearly event? Is it triggered by something else (e.g., time convenience/working hours, etc.)? What factors will influence when a product is looked for, and when it is sold?
• How complicated is it to sell the product? This will influence the importance that the product’s price has on the final decision to buy your product. There’s a theory in marketing that the lowest price doesn’t always win, but if your price is “close” to another’s, then customers will take other things into account where you might be able to beat out the competitors
• What other products are bought with the product that you sell? Is there an opportunity to bundle products together into packs? Or cross sell other more expensive products to make up the margins you are losing against your well funded competitors?
• Look at your competitors and what they are selling? How well are the needs of your buyers met by your better funded competitors? What would they or wouldn’t they be prepared to do? What would they put into the “too hard” basket to do?
• Where do they advertise? Is there somewhere that your target audience goes that your competitors don’t reach or target?

Armed with this information you can make a realistic decision about how you price your products. You might choose to have a “hero” product or group of products that are priced competitively or better than your better priced competitors. If you really understand your target audience you can find smart “niches” – areas where your competitors don’t sell where the margins on those same products could be closer to your cost structure, or where you could sell

Based on your analysis, some ideas for tackling the problem you are facing could include:

• Bundling your products as a package.
• Offering free shipping to make your pricing seem more attractive and less compared.
• Only offering a certain percentage of “hero” products on price comparison sites where customers can easily compare the prices.
• Price matching only on particular products.
• Change the bundling units of your products – e.g. sell them in boxes of 3 if your competitors sell them in boxes of 4 so the price seems cheaper even if per item theirs is better.
• Offer promotions like buy 3 for the price of 2.
• Could you make your products more convenient? e.g., Faster shipping? Having better payments terms or shipping than the better funded competitor? Having better returns policies than your better funded competitors? Selling different styles or items that they do not have – hard to find sizes, different colours (but do your research to make sure they are still popular enough to sell!), etc.
• Using after sales warranties and guarantees – build these into your product descriptions so they show up on Google.
• Advertise in places where your competitors don’t. To make the most of this tactic you have to understand where your competitors advertise and how well they reach the target audience of their products. The bigger your competitors the more they have to play statistical averages, and they may let profitable market segments go to get the most bang for their bigger buck.
• If you have the budget to create it, use interactive advertising. Research shows that this is highly effective and there is even a new commercial study out of the US today that Facebook users prefer interactive ads to banner ads.
• Build trust. Demonstrate your experience in selling those products. Demonstrate that your site is secure. Let your customers leave reviews on your products if you have that functionality in your store .Make your site look professional and different from competitors (use a custom design for your hosted shop website if your budget extends to a custom design). Unless you are a web designer yourself, don’t try to design something yourself. Even if you make it look quite good, a designer can make it look better.

This is just a starter list, there are many more things that you will find if you do your analysis thoroughly. The key point is that when competing against bigger competitors you have to compete on price, but you don’t have to be the cheapest. You have to be the smartest. Think about everything in your marketing mix and every “touch point” between your customer and the order. Online a lot of this will be the website itself so think about how the account area looks, how a customer tracks an order, what the checkout is like, whether a customer can repeat order an item or order easily (this helps boost ongoing sales), whether they can communicate with you easily about an item pre-sale and after-sale.

Finally think about whether it’s easy for them to recommend you to others if they did have a good experience buying from you. Trust and reviews can help build recommendations so don’t discourage them. Have you thought about putting your social media links on your order tracking page for example?

If you can’t compete on price, compete on price as hard as you can, and everything else harder.