This happens all the time. Your product or service is good, your business is growing and, out of nowhere, somebody starts to undercut.
They charge less than you do for the same service. But this is not a problem unless you make it one.
You probably will lose a couple of clients to them, but that is fine.
You do not want penny-pinching clients anyway. You want clients who respect your product and are willing to pay for it.
There are several ways you can handle this situation. My personal favorite is what I call the “busy tactic.”
Keep your competitors busy so they do not have time to pursue clients that will affect your market share. Call them and tell them you would like to meet with them.
Usually, if they are seriously undercutting you, they are either new to the business or a smaller company.
If your competitors are smaller companies, chances are they should reach product capacity much earlier than you.
In addition, if your competitors are new to the industry, they most likely are not as skilled as you when it comes to gaining new clients.
However, if they are both small and new to the industry, then you have nothing to worry about if you quickly act on the situation.
The next step is for you to send some revenue their way. This may sound absurd, but this is a key aspect in successfully implementing a busy tactic.
This blinds your competitors from looking at you as a competitor. They will now consider you to be a strategic alliance.
Your next move should be to send them all your potential or former clients with whom you cannot or do not want to be in business.
These may include clients who are difficult to work with, that have a delinquent business history with you, that do not give you enough business or that you are simply too busy to service right now.
This is effective for a couple of reasons.
First of all, you are helping clients get their services done for a cheaper rate, which essentially means you consulted them for free.
Secondly, your competitors are staying busy and coming closer to reaching product or service capacity.
They do not realize they are incurring a huge opportunity cost by working on all their new “small-time projects.” While they are busy working on these projects, you are free to continue going after high-end clients to build your business.
Here is a real-life example. My first business was a video production firm. We were a very young company with an aggressive pricing schedule aimed at quickly attacking the market share of our competitors.
The strategy was successful, but there were several problems. The prices we charged only allowed us to break even.
However, we were very successful in alerting the market of our brand.
After our first quarter, we increased our prices for virtually every service we offered.
Although we lost a few clients, most of our other clients understood and continued working with us. Shortly after, some younger companies began offering the same services at our original prices.
After meeting them, I realized there were many weaknesses in our main competitor, whom I will call Company Z.
Because Company Z was very limited in their labor pool, they were only able to service about four projects a month.
Yet, my company was capable of servicing about eight to ten projects monthly. When we reached capacity, I began sending all of our bargain shopping clients to Company Z.
After three months of using this busy tactic, Company Z not only began to have serious internal problems, they also became incapable of handling the projects in a timely fashion.
In the end, clients began looking elsewhere for their services and Company Z gained a tarnished reputation.
Eventually, all those jilted customers made their way back to my company.