What's Price war?How does it start?
Why is it so dangerous?
How to avoid or defeat it?
PRICE WAR.
When
you need or think you need to decrease price of your product to
compete, you are already in a price war.
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1) Do you constantly check what your "competitors" do to adjust prices?
2) Do you frequently apply "unmotivated" discounts and promotional campaigns to try to win customers?
3) When a potential customer tells you "your competitor makes me less" do you immediately get a discount to keep the lowest price of your "competitor"?
If the answer is "YES" to at least one of these questions you are already in a price war.
The price war is a symptom that your marketing has been badly planned or even that you are following ineffective strategies.
As I wrote in the article about DIFFERENTIATION, your first goal should be "Be Different".
To do this I've already explained there are many ways to follow.
They all should bring you to become leader in a niche.
In other words, your product must have something others don't. A particular feature, service, presentation, content, or else, that determines the fact you don't have to compete with others.
How to do I talked about it in the DIFFERENTIATION article.
And when you are only one in a niche, you can avoid PRICE WAR.
FALLING INTO THE TRAP.
Begin to fight for price is a great temptation.
Because it's EASY to do.
Very very more simple than focus on your own Value Proposition.
Lower the price is fast and seems the everyday solution.
If
you need to lower the price to compete, you should seriously begin
to re-invent your marketing strategy.
Or
even worse, to re-invent your product.
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Lack of awareness regarding marketing positioning leads many people to think something like "if they can lower the price a little more, I will dominate the market".
Nothing could be more wrong.
If you start to reduce the price to conquer (theoretically) a larger part of the market, it means that a competitor is already producing the same thing you do.
In other words, if competitors do things other than you, it makes no sense to lower the price, because if people really want your product, they will pay the price you decided.
If the low price of your "competitor" takes you away customers could mean 2 things:
- You have not differentiated yourself from your competitor
or
- Customers do not want your product
EXAMPLE.
Think of Google advertising. Google does not set the price for advertising services like Adwords based on ads published in newspapers or on TV. Because, although we are talking about advertising anyway, Google is the only one to offer that specific service. There are no competitors.
DANGERS IN PRICE WAR.
The biggest danger when hiring a price war is that it never ends, it is a race to the bottom, and it leads you to erode profit margins every day more.
Who will win this race on the downside will still be defeated because it will have lost profit margins.
Those who remain in the field will still be weakened.
And when the price has been lowered, the customer will never accept a raise on equal terms.
Another great danger is to lose focus on your Value Proposition.
When you are in the middle of the war, you constantly focus on reducing production costs to lower the price.
I want to emphasize that reducing production costs is positive and certainly leads to better margins, but when it becomes your first goal and you stop listening to your customers' needs, you may have a serious problem.
HOW TO AVOID PRICE WAR.
Avoid price war is simple.
If your marketing work has been correctly set up, you have nothing to fear.
A well done marketing work means you have correctly focused your efforts on underline what's different between you and others.
First of all you should have it clear in YOUR mind.
And later you should make it clear to customers, through your communication.
When your product has finally a distinctive feature, you must be strong and keep working on your communication.
Avoid the temptation to compare yourself to others.
WHAT TO DO IF.
If you think people are willing to pay less to get another product in your business area, check 2 things:
1-Is your communication really effective?
Remember that as far as the content can be excellent, if badly communicated it loses value and can become poor.
It is not enough to have the best apples in the world if you are not effective in making your customers understand why it is so.
2-customers willing to pay for another product are really your customers? We often think that we have to sell to everyone.
WRONG!
Selling to everyone means selling to anyone.
Selling is offering a specific and personalized solution to people regarding the need to solve a problem or satisfy a need.
Sales is not a good medicine for everyone.
This means that even if your product is great for a certain customer, it may not be for another, because maybe even just one small detail is missing.
SUMMING UP.
-If lowering prices to compete is a strategy for you, there is something to be reviewed in your marketing
-Marketing starts from an effective planning of your product
-Your main goal must be DIFFERENTIATED by others
-After you have been able to differentiate yourself for at least one feature, use communication to sell TO YOUR CUSTOMERS with the price YOU HAVE SET UP.
-After you have been able to differentiate yourself for at least one feature, use communication to sell TO YOUR CUSTOMERS with the price YOU HAVE SET UP.
Your questions are welcome.
See you soon,
Andrea
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