Tag Archives: undercut

Is someone undercutting your prices?

Even if your customers seem extremely happy with your company, when a new business comes along offering lower prices or better deals, they’ll often follow them in a heartbeat.

The fact of the matter is that, for many customers, price comes above all else. You could deliver a world-class customer service, be a model of corporate social responsibility, and have the fastest shipping in your industry. But ultimately, if someone is greatly undercutting your prices, even the most loyal customers could jump ship to save their own cash.

So what can you do? Follow Kelsall Steele’s guide to fighting back against the competition.

Added bonus – offer free extras with your usual prices

This is an effective way of making your customer feel they’ve got a better deal even if they could have paid less elsewhere. And if you’re not willing to permanently offer the freebies, can simply describe them as “time limited”.

A good example of this is offering free delivery over the Christmas period. Limited time only deals tempt customers into buying, and savvy shoppers will be eager to avoid typical additional costs to the goods they want, which will give you an edge over your competitor.

If a rival company charges £100 for a product but doesn’t deliver but you charge £120 with free delivery, a customer will often choose you to avoid the personal burden of arranging and paying for delivery themselves. And if that means multiple customers choosing you over the competition, not charging for delivery will pay for itself.

Better deals – cluster pricing and voucher discounts

“3 for 2” and “buy one get one half price” will always catch a customer’s eye. Feeling like they’ve got a good deal outweighs the fact they may have only initially wanted one in the first place.

Most household names in the pizza delivery market are well known for offers like this. A single pizza may cost around £12 to £17 on their own, but when ordered with another pizza using the right voucher or during the right ‘happy hour’ time frame, the price is almost always around £20.

This is an extremely clever and effective pricing strategy that means customers feel like they’re getting an amazing deal. Most people wouldn’t pay £17 for a single pizza, so the deal makes them feel that they’ve ‘won’.

If your customers tend to order products in particular combinations, making a deal out of them with a time-limited voucher can both reward existing customers for their loyalty to your company and attract new customers looking for a good deal.

This method may lower your unit margins but it’ll greatly increase your average order value and help to keep customers coming to you without having to lower your prices.

Know your enemy – price matching

Find out what your competitor is charging. You could search on their website or even call anonymously to find out what their prices are.

Once you have them, compare the numbers with your own price list. How much less are they charging for the same goods and services as you? Does their pricing seem viable?

As you’ll know, supermarkets very publicly undercut each other’s prices and usually advertise ‘price match guarantees’ so their customers don’t feel the need to switch to a new store offering a better price.

Work out how your cashflow would be affected if you were to offer to match their pricelist.

Say you charge £100 for product A, but your competitor charges £90 for it. Reduce your sales figures for that product by 10% on your cashflow and P&L forecasts. Do this for all of the products both you and your competitor sell. Is your competitor’s business actually viable?

Of course, offering a product for less could positively impact your sales figures. But that might mean you have to scale up for extra capacity to produce your pizzas – more people, more ovens, more bikes. Would you actually make any more money from selling 50% more pizzas and loading your business with fixed costs?

If not, price matching may not the best option for your company. Another drawback is that you and your competitor could end up in a price war – knocking down prices to stay ahead only for your competitor to follow suit until neither of you can afford to pay your overheads.

It’s important to think about the future too. It’s so much easier to drop your prices than it is to raise them. If you win the price war and your competitor shuts up shop, it’s unlikely your customers will be happy going back to the old levels again.

Keep profits high – bring overheads down

When a competitor is undercutting your prices, you may be solely focused on increasing your sales. But it is just as important to remember your outgoings too.

If you have to pay out over the odds for your utilities, processing fees, internet or rent, you’re never going to get the profit you’re hoping for.

Scrapping useless expenses or renegotiating with suppliers can cut your annual overheads greatly, leaving you with more money at the end of the year for profit or to run further promotional deals.

Talk to an expert

If someone is undercutting your prices, you need to act quickly and get your fightback plan together. Speak to the Kelsall Steele team for expert, impartial advice on any deals you’re thinking of offering and how it might affect your business.