Competing on Price

Q: Is competing on price effective?

A: The answer actually depends upon your market and your position within the market.

For example, if your market is composed of competitors focusing upon high quality (and typically accompanied by higher prices) then competing on price can be a very effective way to enter a market.

Competing on price can also be an effective way to gain market share - particularly if your competitors have high cost structures or you believe they will be slow to recognize your actions or react to your more aggressive prices. Note that there are also ways to mask your lower prices through one-time discounts, coupons, promotions, etc.

And lastly, if a market is already driven by price competition, it's very difficult to offer competing products with higher prices unless there is latent or obvious customer satisfaction issues with the products provided by the low price suppliers.

But generally, competing on price alone leads to disloyal customers, low margins and many sleepless nights for business managers. Price competition can work. But once you start leading with price, you better be prepared to be the lowest cost producer and offer the lowest prices in the market - bar none.