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Is someone undercutting your prices?

Is someone undercutting your prices?
Thursday, December 07, 2017

Is someone undercutting your prices? Has a new competitor opened up and can you see from your takings that your customers are leaving you for them?

 

It’s a scary situation. Price is surely only one consideration when it comes to people parting with their money to spend cash with you.

 

Often, it isn’t though. It’s much easier to grab someone’s attention with a headline-grabbing price rather than an in-depth description of your business ethos, your social responsibility as a company, and how well your customers are looked after once the money has changed hands.

 

In this type of situation, how do you fight back?

 

First, find out what your competitor is charging

 

Try to get your hands on their price list. They may have it available to view on their website.

 

Sit down and crunch the numbers. Where you can, rejig your turnover figures by reducing it by the amount that they’re charging. For example, if you seem to charge £100 as an average price across the selection of goods and services your competitor is offering and they’re charging £90, reduce your sales figures by 10%.

 

How does that affect your monthly profitability? When it comes to the time when you have to pay VAT, would you struggle to meet the VAT on their figures?

 

Unless it’s a big chain, the chances are that your competitor may not be experienced in pricing and business budgets. They may have set up their business with a charging model that is actually not sustainable. They could have bitten the dust in six months’ time.

 

That’s reassuring of course, but it doesn’t address the problem you have now – you’re losing customers.

 

Fightback part 1 – hold your prices and offer extras for free

 

The extras you offer don’t have to cost that much and they can be described as “time limited” so customers aren’t permanently going to expect from now on to get these freebies.

 

It could be a delivery charge you no longer ask customers to pay.

 

If you install audio-visual equipment and want to charge £2,000 for something where your competitor is coming in at £1,800, is there something you could source for £30-50 which used to sell at RRP for more than £200 which would be a natural fit with the installation?

 

What can you add to your current proposition that the customer can imagine having a cash value that would make your offer feel like the better deal, even if it is more expensive?

 

Fightback part 2 – cluster pricing and voucher discounting

 

If you look at the major players in the pizza home delivery market – Dominos, Papa Johns, Pizza Hut – have you ever noticed how all of their brilliant offer hover around the £20 mark?

 

The pizzas themselves may cost £12-17 each on the menu but order it in the right combination and together with the right voucher and the “discounted special offer” total always seems to be around £20.

 

It’s a very deliberate and effective pricing strategy. Advertise the pizzas themselves as being at or above the price they’d expect to pay in a restaurant. That way, the pizzas maintain their “value” in the customer’s mind.

 

All the vouchers are contingent on certain conditions being met. You have to have the voucher to qualify for the deal or you’re paying £17 for a piece of unleavened bread with some cheese on the top.

 

Look at your lines. Can you come up with popular combinations of deals that can be offered on a time-limited voucher that would reward existing customers for their loyalty and tempt new customers in because they believe they are getting something for, effectively, half the price?

 

This is a time-proven and highly-effective form of attack that, while it may lower your unit margins, will up your average order value and mean that, when the competition has finally run out of money, you’ve never dropped your price.

 

Fightback part 3 – bring down your overheads

 

What you sell your products and services for is just one factor in this equation. The other factor is what you have to pay out in order to secure that level of turnover.

 

Are there any ways you can cut your overheads – utilities, broadband, payment processing fees, and so on?

 

If you run a £300,000 a year business and through diligent supplier management, you can cut your annual overheads by £9,000 a year, you’ve just added that money back to your bottom line.

 

Should I just reduce my prices?

 

That’s not for your Panthera team to tell you. You know your market better than anyone else.

 

But there is one truism – “it’s much easier to drop prices for a customer than it is to raise them”. If you engage in a race to the bottom in a war of attrition with your new competitor, it might be too much of an ask for them to go back to paying the old levels once the competitor has gone.

 

You may be left with a business that, unless you find a way to dramatically increase turnover and squeeze your overheads even more, is not worth running after all.

 

Want to talk?

 

If this is you and you want help running through the financial ramifications of making any sort of offer to retain and attract new customers, talk to the Panthera team and we can work out the consequences of all the proposed courses of action for you. Call us on 01235 768 561 or email the team at enquiries@pantheraaccounting.co.uk.

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