What do you do when your competitors change their prices?
You really have only two choices: respond or ignore them. If the competitor’s price goes up or down, it seems intuitive that you should move your price up or down as well. But slow down and think before you act. Consider these three issues:
1. Can you segment your customers? Price segmentation is simply charging different prices to different people for the same or a similar product or service, like student or senior discounts, VIP tickets, or coupons. Revisit customer segmentation now.
Does your competitor really serve the same customers as you?
If so, can you segment the market so you lower prices only to customers who really consider this competitor? For example, when Southwest Airlines would enter a new market offering lower prices, the major airlines responded with lower prices, but not across the board. It didn’t have to lower its first-class price, nor did it have to lower its prices for loyal business customers used to frequent-flyer perks. Notice in this example products that are highly differentiated don’t need to be discounted, nor do products that are targeted to different customer groups.
If you want to be somewhat immune to competitive price pressure, focus on differentiating your products, in other words, adding value, and targeting customer segments with offerings designed for them.
2. Do your customers know? Often your customers don’t know the prices of your competitor’s products. You need to respond only if your customers know.
3. Why did they do it? Read the industry news and your competitor’s press releases. Try to find out why your competitor made a price change. It may be attempting to get rid of excess inventory or trying to fill a factory. Its may have gone up. The price change may be temporary and not necessary for you to follow suit.