Price wars are the nuclear option of the marketplace: Nobody wins.
When two companies are hell-bent on hacking away at each other through discounts and markdowns, one usually lands in bankruptcy while the survivor limps into an uncertain future.
Nonetheless, there are certain scenarios that could make it easier for your business to survive a price war. Your best bet is to avoid price wars altogether. But if you find yourself headed toward one, you should know that there are several kinds of companies that are more likely to come out on top:
- Big Money Companies. The company with the biggest bank account clearly has the advantage in a price war. While the competition is worried about how to pay their bills, these companies can live off their reserves until the price war is over and they once again raise prices to normal levels.
- Diverse Companies. Other price war survivors are companies that offer a wide range of products or services. If a price war erupts over a specific product, the impact is not nearly as dangerous as it would be if the company only had a single product offering. The bad news is that when a larger company decides to create a price war, they often slash prices across the board.
- Low-Cost Companies. Some companies are built to be lean and mean in the marketplace. By intentionally structuring themselves to as a low-cost, no-frills alternative, these companies position themselves to survive price wars because they are inherently more capable of absorbing price reductions than the competition.
Unfortunately, most small businesses don't fall into any of these three categories. But even though they lack the money, diversity, and cost-efficiency of larger competitors, small businesses have a unique ability to squeeze into a fourth category of price war survivors:
- Differentiated Companies. Small businesses are very adept at identifying and exploiting gaps in the marketplace. For most small businesses, the implementation of non-price differentiation strategies is enough to help them survive a price war. This might mean leveraging your ability to provide personalized service or deciding to specialize in a specific market segment. Anticipate the needs of the marketplace and do whatever is necessary to survive until the price war ends and peace is once again restored to the marketplace.