Wednesday, January 25, 2006

5 things to do if you are being undercut

Undercutting is one of the worse things that can happen to a small business. It might seem like a good idea to be the cheapest, but it’s a high-risk strategy that can kill a market. Clubbing is no exception.

In the clubbing website business there is currently a real problem with undercutting. In our case it’s because the market is made up of a large number of sites run by enthusiasts who don’t worry too much about the return as long as they have some pocket money.

There is also a site doing major undercuts of current market value, forcing everyone else to drive their prices down to compete. This is suicidal. The database of clubbing emails they are using is becoming saturated with too many adverts. Even hardened clubbers don’t want their inboxes filled with email flyers for every night in the UK. Nobody makes money if mailshots become ineffective.

How do you compete?

To cut prices to match would kill us off, so we need to find ways to add value to our customers rather than reduce price. These are our idea on ways to battle the undercutters.
  1. Know your enemy. Analyse what the undercutter is doing and draw up a direct comparison with your offering. Find the strong areas and the weak areas so when your customers mention prices you have a strong reply.
  2. Don’t try to compete on price. Nobody buys on price. Everyone buys on the results they get. In the clubbing website game people are buying brand awareness and customers through the door, not advertising. Show your customers what you have that nobody else does. If you undercut to undercutter you end up in a price war that kills future profits and everyone is worse off.
  3. Add value to your offering. If you feel you are lagging in the dangerous area between high value and low price then move upmarket. Add extra value and forget about trying to "do an EasyJet" by going no frills and low price. We have started a program to do this. We now show customers a full report on the return on investment that we expect to give them. Nobody else in the clubbing website market comes close to that.
  4. Get creative. Look for new angles on old markets. Start a blog to enable communication between you and your customers. Examine trends and follow them. Never sit still.
  5. Be exceptional. Be so good at what you do that people talk about your service. If your competitors reply to emails then you make sure you ring people. If your competitors ring people then you set up meetings and waw them with power point. Remember your customer’s birthdays, even the ones who don’t spend much. It might be a cliché to say ‘Go the extra mile’ but people really do appreciate the personal touch if it’s genuine. Everyone spends more money if they have an emotional attachment.

It’s a slow process to move into new markets, especially when you have to create them with existing customers who are very price aware and think they know all the value you have to offer. In the long run though it’s worth showing your customers you are not in it for short-term cash, you are in it for a long-term successful partnership because that makes both sides much more money!

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