wilmaladiaIn the e-commerce industry, the prices of products are transparent and this gives you an idea what your competitors are selling and at what price. This makes it very easy to lower your prices to match or beat your competitor’s price. But is it really a good idea to engage in a price war strategy for your online selling business? Here are some reasons why you should avoid the price war.
1. Your products will be viewed as low quality
Many consumers assume cheap products are low quality products. Of course, some buyers may be looking for low prices but this can backfire on you as well because many people will assume that your product is just one of those cheap items and they would rather buy from a more credible source.
2. It does not build the reputation of the company
If you think that lowering the price of your item will improve the reputation of your company, think again! In fact, what it does is make people see your market as an unreliable one that is always up for sale and competition. There are times when companies can survive price wars but this happens only to those who have already established their presence in the industry. So if you are a newbie, be careful! You’ll have trouble raising prices later on. If your brand has become known for being inexpensive, customers won’t take well to an increase in pricing (which will inevitably happen at some
3. More Sales Doesn’t Mean More Profit
While it’s true that if you offer the lowest price, you may end up with a large number of sales, the margin on a low-price product is also very small. In addition to having to deal with a higher volume of orders and customers, you’ll need to sell more in order to make a profit. Moreover, since your customers have been trained by other online sellers to expect low prices, chances are they’ll keep searching for a lower price as soon as you increase yours. You’ll be constantly undercutting yourself just to remain competitive. Instead, consider offering more value at a premium price. When people buy products because they truly want them and not just because they’re cheap, they’re less likely to return them, bring down your reputation or complain about them on social media.
You might also want to look at how much you spend on marketing and packaging. A lot of companies spend more money on these than they do on the products themselves—and while this may seem like an unwise investment, it can actually be lucrative if handled right. For example, if your competitors all use plain brown cardboard boxes for their packaging and you use something more creative
4. You cannot sustain a business if you are barely making a profit
It can be difficult to recover from a price war as you have already lost a lot of money with little or no profits during the process. This can set back your online selling business, and it could take time before you get back on track, depending on how much money you lost during the price war. You may end up losing customers, tarnish the reputation of your business, or worse losing your business because you are no longer making a profit.
5. It’s the easiest way to get burned out!
Imagine if you are selling a 1,000 parcels a day and earning Php 10 only on each parcel. That is Php 10,000 profit. You have to spend more money on inventory and more labor in fulfilling this volume of order. If you continue on this volume everyday, you will exhaust your fund and burn out your team while earning a small profit. More sales means more customers to serve, more inquiries, returns and complaints are inevitable. If you are barely even making money with your business, you may not be able to afford an additional employee to help you with the day to day operation of your business and you as the business owner may have to step in and fill in those gaps.
Burnout is common among small business owners. I’ve seen it happen so many times. At some point, you try to do too much and you can’t keep up with it all. And worst case, as a business owner, it affected you, your personal life or your mental health and you decide to quit. Which we hope that will not happen, since we know that business is a long term game. So if you are tempted of lower your price and get into the price war, think a thousand times!
Conclusion
Customers are always looking for the best deal possible, and if they don’t think they’re getting it, they’ll go somewhere else. As an entrepreneur, this means you have to keep your eye on the competition—and adjust your own pricing accordingly. However, don’t fall into the trap of getting into a price war with other companies in your market. In fact, avoid it at all costs. Instead of using price as your primary tool for attracting customers, use it as only one part of a well-rounded marketing strategy.