How low can you go? When you’re in price-driven competition for customers, you may find it’s a game you can’t win. A seller who’s bigger than you are is likely to be able to survive a price war more easily than you can. The bigger seller may be in a position to make up in volume what he/she loses by accepting smaller profit margins. And he may cut costs more easily by demanding price concessions from suppliers.
In any case, cutting your own profit margins to the bone can be dangerous to your financial health. It’s been the beginning of the end for many sellers.
A better strategy may be to differentiate your product from what your competitors are marketing. Show why your product is different and better, why it has extras that your competition doesn’t have, why it can do more. Prove that your value is better and convince your buyers that it’s worth the premium price.
Let your competition scramble for sales by cutting prices. You sell an improved product to customers who want better quality and are willing to pay for it — and maintain decent profit margins for your company. Be careful not to charge too much more than the other guys, or customers may decide your better quality comes at too high a price.
Be prepared to make a strong case for your premium product. You may have to invest in aggressive marketing to get your sales story across.
A word of warning. This strategy isn’t for everyone. There are some markets that are almost totally driven by price. In such markets, you have no choice but to cut prices and cut costs if you want to stay in business.