How to compete with businesses that offer similar services at a lower cost?

All of us, at one time or another, are confronted with a low-cost or low-price competitor. The solution isn’t to lower your prices and engage in a price war, because the result is lowered profitability for everyone involved.

Established firms can respond to low-cost competitors via one of four overall strategies: (1) waiting and watching, (2) deciding not to match new competitors’ price levels, (3) matching or coming close to low-cost competitors’ price levels, and (4) developing a new fighter brand or private label brand to be sold along with a company’s traditional brands.

Assuming that we cannot bring our costs down to compete on price, our options could be:

1. Differentiate by services quality;
2. Differentiate by placement and convenience;
3. Differentiate by segment specialization;
4. Differentiate on perception.

For sure, we need to generate perceived added value that leads customers to pay more for our services. That perception may not just be in relation to the service but the way we treat our customers and how easy we make it for them to buy from us.

If your prospects only purchase your product or service based on price, you’re doing something wrong. After all, price matching is the quickest way to turn whatever you offer into a commodity.

Sure, deals sometimes come in the form of cheap prices. However, you can still deliver deals (and extra value) by bundling items, providing extra services, creating experiences, offering unexpected perks, or just sharing helpful advice.

As a business owner or entrepreneur, you must prove to prospects that they’re getting great value — not just a great price.