Sales incentives, such as packaged deals, time limited price discounts, finance offers, etc are designed with two main aims in mind:
You want to influence a customer to purchase now from you, and
You want market capitalisation via an awareness campaign but ultimately you would prefer to eliminate your competitors influence.
And that is fine if you are the instigator of an aggressive advertising campaign. But what if someone else is muscling into your domain, how do you react.
We have previously discussed price discounting and all the reasons why not to do it. But would something like this scenario be a price discounting consideration? I don’t think so.
As soon as a competitor launches a campaign that will erode your sales, then you need to react. You need to react immediately and decisively. Your response not only needs to neutralise what your competitor has planned but it also needs to drive sales away from them and to you. You need to treat this as a market increasing exercise rather than a defensive reaction to a competitor.
Turn this threat against you to a commercial advantage for you.
In a market where you sell commodity items, there is little to differentiate your product from others. Usually the only wiggle room on these items is around margins; although dropping margins on these products may provide some short term gain, long term this strategy will adversely impact the performance of your store.
If a competitor promotes their product by temporarily dropping margins, then what should your response be? And what should your response be if they are dropping the sale price to where the item is being sold below cost?
The following strategies could be considered appropriate responses: 1. Do not match the offer directly. Modify the offer so that the competitors offer is not as attractive as first thought i.e. If they have dropped the price by 50% for this week only, then drop yours by 60% for the weekend only. 2. Bundle the product with a complementary item. 3. If this is a high cost item, do not advertise the cost, instead offer 24 months interest free (and increase the item cost to cover your expenses). 4. Offer free installation to the first 10 (or 100 or 1000) customers. 5. Offer a pre-sale to the next model, thereby flagging the competitor’s item as the “obsolete” model.
Obviously, what makes the above 5 strategies effective responses is that you have been prepared for your competitors actions. This takes a fair amount of business intelligence to be in this kind of position. At the lowest level, because you sell the same commodity item you probably have a better than average chance of knowing the industry direction. You can assume that your competitor has the same knowledge. An absolutely classic example is mobile phone plans. All suppliers are selling the same product, but have you ever tried to compare their access plans? Is it bundled with a handset? Are mobile to mobile calls free across all networks or just the same network? What is the spend limit? Are calls charged at the same rate? What is the flag-fall? How much data is included? What is the data rate charge? What are the SMS and MMS rates? What is the commitment term? Can unused credits be rolled over? …. You get what I mean.
On a slightly more organised level, you could expand your business knowledge by using mystery shoppers to visit or call the store. I would check the legal requirements in your area, but miniature “spy” cameras a just an eBay click away. If I were a betting man I’d bet that these sort of strategies have already been used against you, especially if you are seen as a threat.