Is Price Matching the Right Strategy for Your B2B Sales?
Price isn’t always the deciding factor – use the right strategy because price matching could be a dangerous race to the bottom for your business.
Market data on competitive pricing can become a fantastic tool when engaging a customer on price.
The best companies relentlessly track pricing using modern order management tools relative to their competitor’s and strategize on how to discuss price.
The idea is to use the market data to gauge the reality what a customer is seeing and how you show ROI based on the perceived value of your goods and services.
If your organization is collecting real time solid market data on pricing, then you’ll always be one step ahead of your competition.
Price matching is a common strategy used to help ensure that a business doesn’t lose a customer simply due to a lower price. There are a lot of things that have to go right for e-commerce to work. The customer has to trust the seller, like the shipping method, find the exact product they want and like the price.
Sometimes you can be confident that the customer is unable to secure the order at the price demanded or you can take a calculated risk that your competitor won’t be able to deliver the price relative to the service your customer requires.
It could be that your company has razor thin gross profit margins and can’t afford to lower your product’s price.
As Forbes stated, business owners need to keep in mind:
It’s not a guarantee of sales or success. Even if price matching nets more sales of certain products, it still directly impacts margins, and bottom lines. Retailers will need to make up for those lost margins by driving sales of other products.
Whatever the situation, there are benefits to maintaining your pricing no matter what your competitors do.
1. Present with Confidence and Gain Trust
There is significant work put in to justify a product’s price tag and it can be undermined the moment you decide discount or match price.
Capitulating on the customer’s price request is simply undermining your product and service’s value and can erode trust that you are not setting price based on a customer’s wallet size. In this case manage the customer’s expectations by revealing insights and value of the product/service relative to the other prices they are seeing and show the ROI of these benefits by clearly outlining the payback.
A great example of this is Amazon as shown in a recent publication on Adweek;
Amazon doesn’t offer price matching, but as recent figures show, it dominates nearly half of the U.S. ecommerce market—thanks at least in part to Prime and all of the benefits it affords—and really doesn’t need to.
By not lowering the price, your company has backed up its claims that the product warrants its price tag and that the customer should trust you because you understand the inherent benefits to each specific customer.
2. A Commitment to Strategy
Price matching is so often a race to the bottom and ultimately a losing proposition for your business.
If you are certain that your product is superior, meets all the needs of a customer and you’ve had developed rapport when that customer returns, price won’t be the deciding factor. In fact, you can assume that your competitor wasn’t able to deliver on the promised good or service and you’ve already won.
Now you have held the value of your service and that customer is happy to pay for the newly perceived value.
However, if you lower your price from the outset you have devalued you organization’s product or service from the gate and you can never regain that value no matter what features or services you add.
3. A Race to the Bottom is a Race That No One Wins
“What does price matching mean for our product and business?”
When price matching you starting a price war.
This war erodes the value of the entire product category.
Once you match pricing, your competitor is compelled to offer it for less. You may be able to keep the price confidential for a short time but eventually customers advise your competitor that you matched their bid.
This is where the war begins – competitors will then lower their price and use your own pricing against you to secure other customers. On top of the race to the bottom what happens when your other customers hear you haven’t offered them a lower price?
Defend your position as the incumbent supplier against competitors by standing firm and avoid the war.
The last thing your company wants to do is get into this war with your competitor. All that does is erode market share, reduce prices and lower your product’s gross profit. In addition, the longer the price war continues, the more likely you’ll lose your perspective. Your focus will shift from servicing customers and making a great product, to just making sure you beat your competitor. In the end, you’ll end up with a price so low your gross profit will be virtually nil.
At Ai2 we’ve seen a number of organizations purposely low bid customers in the hopes of driving down competitor’s pricing. They are doing this because they are trying to appease investors with total user numbers and push overall sales volume up for a future sale.
4. A Price Concession Creates a Healthy Relationship
Take the time to review the impact price matching has on your business and what it means for your market.
The best approach is to justify the customer’s request by asking for a concession from them. Give and take make a healthy deal – you win, they win and the product maintains its original value.
These concessions could be larger volumes, longer purchase commitments, new custom features, or partial prepayment of the order. Make sure your customer provides you with a reason to lower the price then do it gracefully.