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Agony Lance: How to deal with discounting

How do I deal with massive discounting from competitors? @Dannefaerd

Any time you find yourself in a race to the lowest margins, it’s clear the product you’re selling is unable to command a premium price; that means customers are perceiving your products as near enough, or equal to, your competitors’ products. That’s not a great place to be, so your goal now has to be to create perceived or actual space between the cheap end of town and your products.

Grab some material on design thinking, go visit your customers and potential customers, seek to understand what it is that they value, then deliver to that. Two good examples of this are Pic’s Peanut Butter and Chanui Tea, which carved out high-end niches created by the continuous downgrading in quality of the incumbent brands.

To create perceived differences in value where there are none, or to highlight real differences, turn to promotion and marketing. Advertising can work extraordinarily well in some fast moving consumer goods categories, and in others PR or building sales teams is the way forward. Ultimately buyers will see through marketing hype if your products are similar but more expensive, so seek to exit categories where you simply cannot create a sustainable advantage.

Meanwhile you can choose to enter into the immediate discounting battle or not and whatever you do will send a signal to your competitors. If you don’t discount in response, perhaps they will drift their price up again to capture more margin once they’re happy with their market share. If you discount to match them then you’ll risk moving the price down permanently. If you brutally discount to go well beneath them (especially on one or two of their core clients or products) you might send a message of no tolerance.

Do what you can to sign up long-term and exclusive agreements with your existing buyers, if that’s possible, or bundle up products to sell at a discount for volume.

If your competition has a genuine cost advantage over you, then it’s ill-advised to compete on price, as they’ll price below your costs and above theirs – and put you out of business. If you believe the competitor is using their market dominance elsewhere to subsidise prices and drive you out of the market, contact the Commerce Commission and start recording what’s going on. Never directly or indirectly call your competitors and talk about price – that’s a nice way to end up with a large fine and some free accommodation for a few years. 

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