Respond to a Price Change by a Competitor How do you respond when your competitor(s) lower prices? The natural reaction—to lower your prices as well—isn’t always the correct move. Before taking action, gather all of the facts.
Summary EXERCISE SUMMARY
When to Address
Who Should Participate
Where to Use the Results Why it’s Important What Builds Upon it Timeframe to Completion
When your competitors’ price changes Business leaders: company founders, owners, presidents and vice presidents Marketing and sales leaders Financial leaders Product managers Channel managers Promote any price changes through your distribution channels, your marketing materials and campaigns and your sales team.
It’s not always a clear decision to reduce your prices after a competitor does the same. Sometimes that can start a price war that will hurt profitability. Your pricing should reflect your value proposition. Roughly 30 minutes to one hour
Pricing Respond to a Price Change by a Competitor
page 1 of 9
Potential Business Impact
Medium
Deliverable
You’ll review your competitors’ prices and establish your price.
Next Steps
Determine your price sensitivity.
Target Completion Date
PARTICIPANTS TASKS
PERSON RESPONSIBLE
DUE DATE
Notes
Pricing Respond to a Price Change by a Competitor
page 2 of 9
Respond to a Price Change by a Competitor
What to Complete
1. ANALYZE COMPETITOR PRICE CHANGES 2. DETERMINE COMPETITOR PRICE CHANGE RESPONSE
Where it Fits in Pricing Match Pricing Strategy to Value Proposition Define Pricing Strategy Determine Cost of Goods Sold Set Price Floor Review Competitors’ Prices Determine Price Analyze Competitor Price Changes Determine Competitor Price Change Response Gather Price Sensitivity Data Determine Price Elasticity Find Optimal Price Calculate Profitability on a Single Deal
1. ANALYZE COMPETITOR PRICE CHANGES The first step is to review the price change and the market effects at a higher level. Who has changed their price and what is the change? Is the price change temporary (i.e. a special promotion) or permanent?
Pricing Respond to a Price Change by a Competitor
page 3 of 9
Does the price reflect a change in the product or offering itself? For example, has your competitor bundled a new service in with the price, or does the product have new, more valuable features? Is the price change offered to all customers in all markets, or does it apply to only a select group? Have any of your other competitors reacted to this price change, and how? How significantly do you think the price change impacts your ability to compete? Now ask your sales team the same question – how significantly do THEY think the price change impacts your ability to compete? How does your value proposition impact your pricing strategy? For example, if you’re competing on price, then a response is more critical than if you’re competing on innovation or intimacy.
Pricing Respond to a Price Change by a Competitor
page 4 of 9
Next, review this process for tackling the issue and check the tasks that seem relevant to your situation.
STEP
Gather all the facts
If you believe a price change is critical: Use 66-‐F to evaluate how profitable you will be at various prices. Use 66-‐J to determine how a price change will impact your sales volume [Exercise 65 – Price Sensitivity will help]
NOTES
What are the numerical results from Exercise 66-‐F? Are you significantly outside your competitors’ pricing range? If you completed Exercise 66-‐J, what is your price sensitivity level? Can you afford to lower prices? How much will it decrease/(increase) revenue and profits? What is your recommendation?
Pricing Respond to a Price Change by a Competitor
page 5 of 9
2. DETERMINE COMPETITOR PRICE CHANGE RESPONSE From the previous section, what is your decision? OPTION
SELECTION
Change your prices Leave as is
PRICE CHANGE If you decide to change your prices, outline the areas to address to communicate your changes to the marketplace:
AREA
Distribution Channel partners Website
Sales Tools and Literature
Order Processing & Fulfillment Marketing Team PR Team Finance Dept
ACTIVITIES
KEEP PRICING AS IS If you decide to keep your prices unchanged, it’s still a good idea to create a plan to counteract your competitor’s momentum from their price change. Consider going on the offensive yourself and promoting differentiation (if possible) [Competitive Positioning can help]. Here are some ideas:
Pricing Respond to a Price Change by a Competitor
page 6 of 9
STEP
Develop messages for your sales team to use in responding to the price change. They need to be confident and focus on the value your product delivers. Look at your literature and tools. You may want to strengthen the messages that you deliver, perhaps addressing the difference in price more strongly. Monitor how the market reacts. Continually ask your sales team for feedback on whether the messages and materials are resonating. If your sales team cannot seem to overcome the problem, it may be a result of their selling and closing skills. [Sales Management can help]
NOTES
What’s your recommendation for moving forward? Now create your action plan. ACTIVITY
PERSON RESPONSIBLE
DUE DATE
Pricing Respond to a Price Change by a Competitor
page 7 of 9
Respond to a Price Change by a Competitor
Report
1. OUR COMPETITOR PRICE CHANGE 2. OUR RESPONSE This report summarizes our results from completing Exercise 63 – Pricing: Respond to a Price Change.
1. OUR COMPETITOR PRICE CHANGE COMPETITOR
PRODUCT
NEW PRICE
PREVIOUS PRICE
OUR PRICE
DATE CHANGED
We estimate that the competitor price change will: Our recommendation is to:
Pricing Respond to a Price Change by a Competitor
page 8 of 9
2. OUR RESPONSE We recommend the following activities to respond to our competitor’s price change: PERSON ACTIVITY RESPONSIBLE
DUE DATE
Pricing Respond to a Price Change by a Competitor
page 9 of 9