My company essentially invented a certain product category many years ago and for about 3 years we were the only company offering this digital product. Because we were the first and only, the we grew fast and quickly this product became our number one seller. It essentially funded us as we were bootstrapped. About 3 years into it a larger competitor came into the market and undercut us by offering the same product at around 50% to 90% less than we were offering it. The product is digital, so pricing is rather arbitrary, but the prices we were originally selling it for were very reasonable and most would agree that the competitor's pricing, while cheap, greatly devalues the product itself. (A common theme with this particular company.) Every since then, we have been hit hard and have lost a huge amount of market share to this competitor. From the vendors that sell this product through my company I hear 2 sides: 1. We should not lower our prices to be like them. Instead we should raise quality and keep the prices the same. (While this sounds ok, the idea of raising quality isn't really applicable in this situation. While we have some control over it, we don't have that much control.) 2. Other say we need to lower prices to compete. In fact, there are some vendors that sell the same product through our company at a higher price and sell the same product through the other company at the much lower price. With our company, we allow the vendors to set their own prices, but the other company does not. They force all vendors to follow their lower pricing points. In the last year or so, the other company has actually crept up its pricing to be closer to ours. So, wondering... should we drop our prices to match or beat theirs? Or, should we keep them the same? Thoughts?
You have two issues to sort out here....
1) You were the only game in town until the competitor came along, and guess what, the prices got lower. This is normal and natural in the evolution of companies and their competing products. Eventually, at least once competitor decides to make an issue of pricing. Indeed you have a choice to make. I often advise my clients this way: If you have a great product, and it's priced higher than your competition, you must provide your marketplace with a way to view your product as worth the price. If you cannot to this, then by default, you must lower your prices and by doing so, give up much of your profit.
2) Your competitor's pricing has crept up to meet yours. Without any real indicators blaring to me the truth, I'm betting (from experience) your competitor temporarily lowered their price to gain market share (successfully) but did it at such a low price, they cannot make a profit on the customers they gained. This means you should keep your higher pricing and repeatedly broadcast to your marketplace that you have a superior product at a higher price. Doing this successfully means your competitor will be doing business in an unprofitable zone and will not be able to sustain this for long...and will either come up to meet your pricing or suffer from damaging lack of profitability and cash flow.
I suggest you take the strategy of forcing your competitor to either suffer or meet your price. Please do not lower your price, or lose profit, unless you are unable to publicly justify your product as superior!
Good Luck and get cracking on justifying to your marketplace that your product is superior and worth the additional price!
Answered 9 years ago
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