Playing the price war

Good salespeople know how not to lose the price war: never play it.

My son knew this too; even at 8 years old, he never undersold his Pokemon cards, and his were always the rarest and most sought after—or at least, he made it seem that way.

A few days ago, I was having lunch with a “colleague” (or competitor, someone in the same line of work) who asked me for advice on how to develop a business. Currently, he charges very low rates, for example, offering a Facebook campaign for 100 euros per month and a landing page for 70 euros.

The fact that he was asking for my advice made me well-disposed towards him, as he was clearly struggling.

His strategy was to expand his client base as much as possible by working at prices that not even many students would consider.

My attempts to make him rational about the price war were futile.

stop price war

After almost an hour, we said goodbye, and I paid for the lunch. It wasn’t a good feeling; I saw no way out for him who, at the dawn of 50, was playing a very dangerous game.

A reasonable price is fundamental in any logic, but price wars can be disastrous, and in the end, everyone loses… including the customers.

In every time and place, no price war has won for at least 5 good reasons:

  • Lowering prices doesn’t necessarily increase the number of clients.
  • Even if sales volumes increased, profit margins would be reduced accordingly, and it’s not certain that fixed costs could be absorbed.
  • One would be forced to lower the quality of the offered services.
  • It shifts the customer’s focus solely to the economic aspect of the offer.
  • It creates a reputation for being low cost.

At the base of these price wars, there are always several negative factors, including the lack of a well-defined strategy, the inability to differentiate, difficulty in negotiation, and above all, perhaps the worst, the inability to sell one’s products or services effectively by highlighting their value proposition.

Quality is increasingly important to customers, and many of them will be happy to pay more for better, faster, more accurate, more attractive services.

If a customer disagrees, they can tell me, and I’ll pass on the contact of my colleague.