If you find your organization embroiled in a price war with a competitor, how should you respond? Using CPQ tools helps you develop a proactive approach that puts you in a good position to respond to these challenges. But first, you must understand the root cause that’s driving the price war.
In some cases, the best option is to offer no response. For example, your competitor may be dumping inventory at low prices to generate enough cash to survive. This act of desperation by your competitor probably isn’t a direct attack on your market share. It could create short-term problems for you, but it’s generally unwise to respond by lowering your prices.
A price war might also signal an impending product transition. In a year-end sale, your competitor might be selling old products for less to make room for new inventory. This practice is particularly common among auto dealers, for example. Again, this is most likely a short-term problem.
But other price wars are strategic attacks to acquire your market share. This type of price war is a particular concern when you face global competition. For example, China dumps commodities in the United States in order to gain market share. They’re using a price war to create a presence in a market.
Another serious type of price war comes from different technologies vying for market standardization, such as Blu-ray vs. HD DVD formats or Xbox vs. Sony PlayStation for gaming consoles. Here, your competitor may use a price war to drive the marketplace toward their version of the technology. If they are able to become the standard technology, there’s opportunity for long-term profitability.
In general, price wars are not long-term actions. But they are examples of the challenges companies face in a competitive environment. To win in this kind of environment — and the occasional price war it produces — you need three elements:
1) Speed and ease of doing business: If you’re offering great responsiveness and your customers say you’re a dream to work with, you’re training your customers to see that doing business with you is about more than price. That’s the first step to winning a price war.
Ask yourself these questions:
- Are you the first to the table with a quote?
- Are your reps getting complex configurations back to the customer in minutes, not days?
- Do you make the purchasing department’s job easier?
- Do they know you as the supplier that gets it right, quickly?
CPQ tools are a great way to improve the efficiency of your sales reps, which increases their responsiveness and speed. Using CPQ in this way helps ensure that you are the customer’s preferred provider, even when a competitor tries to lure them away with a lower price.
2) The right comprehensive offer: Companies are constantly trying to reduce their supplier list because it allows them to reduce their overall spend and increase their purchasing power. CPQ is a great way to help your sales team become one of those key suppliers. These tools help sales reps provide a targeted and comprehensive sales offer, analyzing your product portfolio for relevant cross-sell and upsell opportunities.
3) Integrated pricing guidance: On its own, CPQ isn’t a pricing optimization platform; it’s basically a repository. That’s why it’s a good idea to integrate CPQ with pricing guidance based on today’s data science. By using price optimization and guidance, your sales team receives early notifications on any changes in customer buying behavior, allowing you to take proactive measures to retain the customer. As your transactional data continues to evolve over time, your pricing remains relevant and based on value.
In the end, the first step in a price war is to understand what’s driving it. Before you react to any kind of pricing, get visibility into the situation and understand the impact of changing your pricing.
If your sales team has been taking the right proactive steps all along, a price war is likely to be little more than a short-term act of desperation by a competitor. Weigh the potential consequences, and make choices that are right for you and your customers.