Who wins a price war? And how to avoid one.

Price Squeeze

 

 

 

 

Who wins a price war?

I ask this question a lot as it is very relevant now that we can easily go online and compare prices to get a better deal.

Many people tell me that the consumer wins a price war and tell me that’s the way it should be. I like to challenge that – does the consumer and customer really win? And what is the definition of winning anyway? Winning’s a bit like success, not the same for all of us.

The basic definitions of winning:

  • as an adjective:  gaining, resulting in, or relating to victory in a contest or competition
  • as a noun: money won, especially by gambling.

So, who wins a price war?

Sellers rarely win a price war. Sure they make a sale for having the lowest price but there are few sellers that don’t resent losing margin and profit to the antics of their competitors. In my experience running discount branded businesses (a $2 shop, two eBay stores and a couple of other online businesses) discounting to beat the competition shortens the life of a business, adds stress and creates a perception (both in the eyes of the customer and within self) of “cheap”and sometimes nasty. Victory is rarely satisfying without some profit or something to show for it.

Buyers don’t always win either. A perfect buyer-seller relationship is long-term, has a win-win for both parties and has constant communication to keep the relationship firing. A company and team that takes a constant hit on price will often display mannerisms of:

  • Haste, trying to get more done in less time
  • Resentment, for underselling its worth
  • Sporadic or non-existent communication due to a lack of quality resources or time.

A customer receiving poor service rarely feels great about it.

Add to that the old saying that we “get what we pay for” issues often arise when purchasing purely on price. Inferior products, inferior service and late deliveries are often the experience with companies providing cheap products or services.

So whilst a customer might win a price war sometimes, most often no-one wins.

How can you avoid a price war and profit?

As a seller, bundling is an ideal alternative. By adding other products and or services to an offering the waters get muddied making it difficult to compare to the competition. There are endless products and services that complement each other. For example an accommodation provider could scour the local area and offer vouchers for local providers, increasing the overall value of their accommodation by hundreds of dollars. A professional services provider might offer experience tickets or the services of complementary colleague (a carpet clean for every mortgage sold, or a printer for an IT service). There really is no limit to the products or services that can be offered to bundle to delight a customer.

As a customer bundling can be exciting and rewarding too. Never hesitate to ask for the bundle rather than the discount deal. If you have done your homework you will know a ballpark price you should be paying to avoid that “I got ripped off” feeling and asking to something to be thrown in or combined is a reasonable practice.

So who wins a price war? No-one long term.

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