Your prices are not randomly set. They’re based on the cost of doing business and should include enough profit to make the job worthwhile. 

Since your prices are based on something real, it’s unrealistic to think you can drastically reduce them and survive. So what do you do when a competitor starts advertising that they’ll perform the same service for considerably less money? Do you react hastily and set your prices lower than theirs?

Lower value for everyone

Price wars between competitors hurt everyone because they destroy the perceived value of what you do. If you think you can compete by cutting prices for a short time until you win the pricing battle, remember that customers will feel cheated when you return to your standard pricing. 

For example, you know that $1 burger on the fast food value menu? Remember when it was $1.49? I’ll bet you’d feel ripped off if the price of that same burger went back up to $1.49 tomorrow, even though you paid that much for it a few years ago. You now perceive that it’s worth only $1. Customers will apply that same thought process to your business. If you cut your prices by 20 percent, your service will be viewed as being worth 20 percent less, and that will be hard to overcome in the future.

Don’t go to war

This is a subject that comes up frequently, especially in competitive marketplaces. One day a cleaning contractor is working away, happily serving customers, paying the staff, maintaining the equipment, paying the bills and making a little bit of money. The next day, a previously satisfied customer informs you that a new cleaning company just started offering services at half of what you’re charging. What do you do? 

If you panic and announce you’ll beat anybody’s price, you risk becoming a nonprofit company and your labor will become volunteer time. Ask yourself how long you’d want to keep that up. 

It’s a hard piece of advice to follow when you see your customers migrating to the competition, but don’t panic and start slashing prices. Give the aggressor time to shoot himself (or herself) in the foot. If you can’t make it on razor-thin margins, neither can they. Be there to pick up the pieces (and customers) when they go out of business. 

That doesn’t mean you should sit back and do nothing. When the competition undercuts your prices, consider taking the following steps: 

Don’t overreact. Maybe the competition enacted a temporary special offer because they are in desperate need of cash. Wait and watch to see if it’s going to last. 

Don’t aid the enemy. If suddenly you are getting a barrage of phone calls asking price-only questions, suspect your territory is being “scouted” and stop giving out pricing information on the phone without details regarding a specific job.

Offer more. Align your business with a complementary service like excavation or water damage restoration. “One stop shopping” has value
to people. 

Be the expert. Place ads touting your customer service or offer your expertise. Stress that you explain all options and help customers make informed decisions. Explain how your company provides a variety of solutions to fit every circumstance. You are not saying the competition doesn’t do these things but adding value to your services for people who appreciate integrity and quality work. The competition is only talking about price, so people who care about price alone are the only ones they are reaching. 

Ramp up customer service and tout it. Don’t cut back on service or equipment to save a few dollars during this crisis. Rather, stress to customers how you provide impeccable service and use only the newest equipment
and technology. 

Cut prices judiciously. If you feel you have to cut prices, do it with discretion and make it easily reversible. An example would be limited time offers, coupons or special pricing for new customers only. 

Build loyalty. Make switching to the competition undesirable by starting a loyalty program. If customers are in the process of building up points toward getting something free or at a reduced price they are less likely to leave and lose what they’ve earned. 

Add value. Find something your business can add to stand out in the marketplace. Be the most unique business in the category. 

Build your brand. Push your brand name in the market. Brand name businesses stand stronger in a price war. If your name is the first one to pop into someone’s mind they’ll call you first and then you can sell your service rather than compete with the competition’s lowball price.

Get creative

There are other creative ways to fight price battles. I heard of one company that fought back against an aggressive price-slashing company by creating a variety of alternate business names and listing them all in the Yellow Pages. Why? When the phone rang five times in a row asking about prices, they could be sure the customer calling cared about price and price alone, and they could subsequently decide not to do business with that customer. Or, if the customer called their five different “companies” and got the same price quote five times, they might be convinced that the price quoted was the going rate for that area and not quibble about paying it. It seems like a lot of effort, but it was worth it to this particular company.

Remember, going tit-for-tat in a price war tells your customers that your pricing was unfair to begin with or that you are willing to work for free. Instead find a competitive advantage aside from price and promote it. A steakhouse does not add a dollar menu just because the fast food place across the street does. It touts higher-quality offerings and service. Differentiate yourself and focus your marketing promotions on those advantages. It could make you a stronger, more profitable company in the long run.