What to do when the competitor sells cheaper
The store owner who is selling cheaper may not be the example to follow.Name Email It is common to see the famous “ price war ” in Retail and for these situations, we will show you what to do when this happens. But first, you need to understand the possible reasons that led your competitor to sell cheaper. Why sell cheaper? Well, many retailers ask themselves the same question when they find competitors with prices well below the average. Next, I will need you to pay close attention to the next topics, as it will be possible to understand the causes of this situation a little better. Don't know your margins The first reason that makes more and more entrepreneurs sell cheaper is the fact that they do not have control over their margins and indicators. This can happen through negligence when setting the price, for example. It is common to find recommendations on the web for not-so-effective methodologies such as apportioning fixed costs, copying competitors' prices and applying some markup factor, without having full control over your costs and expenses.
Of all the reasons, this one is easily resolved – I’ll show you how Colombia Mobile Number List to do it later! Prey on the competition Holding back competition is the second reason that most entrepreneurs lead to price reductions. The central thought of this situation is basically the following: “By selling cheaper, I will be more competitive and gradually, my competitors will not be able to continue in the competition!”. On the one hand, competitiveness can actually increase with the reduction, but stop and think about your contribution margin. What will happen to her? Take as a reference the margins of the fictitious product I created. Imagine if a competitor started selling the same product for a price of R$20.00? If the stores' margins are the same, the sale will be made at a loss , without taking into account the product's working capital. No matter how much this store tries to prey on its competition, its useful life in retail will not be long, it needs to generate net profit and cash – which is not happening. It's worth remembering that low prices are not the only way to compete and at the end of this conversation, I'll show you other ways to reverse this scenario. Let’s move on to the next reason! Fixed stock Buying on a large scale and not being able to sell all the products is a common occurrence in sales – especially after commemorative dates. In order to renew stock and prepare for upcoming occasions, many entrepreneurs reduce the price of their products – with the awareness that the profit margin will be lower.
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Competitive Strategy According to Michael Porter, there are three different competition strategies: differentiation, focus and costs. In the topic we are talking about today, we refer to cost strategy – where we seek to reduce the profit margin of products and compete for the lowest price. In very competitive sales channels, such as Mercado Livre, for example, it is possible to find virtual stores reducing prices for this reason. Of course, all strategies have pros and cons and to do this, it is necessary to analyze the viability of each of them. What to do? We can understand that many of our competitors are selling cheaper and quite possibly taking a loss on their accounts. “What can I do to avoid taking the same path as these people?” – you may ask yourself. This will be my objective in the next subjects, I will show you how to get around a price war. Analyze your contribution margin The first action we must take is to analyze the current sales profit margin, the contribution margin. As we saw above, many of these stores reduce the percentage of earnings without having any real idea of the impact on the indicators and as a consequence, they pay to sell. By calculating the gross margin of each sale, you will be able to be sure of the minimum and maximum that your profit can reach, without causing major problems. Let's say that in the same example .
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