3 Proven Ways to Stay Competitive Without Lowering Prices

Evidence shows that when companies engage in a price war, it can be bad for customers, companies, and eventually, the entire industry. Experts from Harvard Business Review argue that in a price war, there are no winners. The airline industry is a perfect example: In an effort to compete in the early 90s, airlines slashed prices, which led to record volumes of air travel—and record losses. Air travel continues to rank among the worst-rated customer experiences today.

However, small businesses often struggle to survive against better-resourced large enterprises that can easily afford to lower prices. Merchants may feel forced to lower prices to stay competitive. How can you avoid risking a price war while still competing for customers? Here are some strategies to try.

[Read more: Why Top Brands Are Using These Pricing Strategies to Drive Business in a Challenging Environment]

Focus on value

Some products are commodities, or basic goods that are relatively interchangeable. For example, sugar is considered a commodity: There’s relatively little difference in quality between brands of white sugar. Customers simply choose the lowest price when shopping for a commodity.

Most merchants aren’t dealing in commodities, which means that customers weigh factors beyond price when they make a purchase decision. Customers are looking for the best value. They want the highest quality product with a great customer experience, for the best possible price.

“When customers prefer the lower priced of two items, it's usually because they believe the cheaper item is a better value,” wrote CBS News. “To compete, you need to get the customer to value your product more than the competition's — regardless of the price.”

Communicate the value of your product or service by focusing on your superior customer service, great shipping or returns policy, high quality/premium goods, or some other unique selling position. Customers may be willing to pay more if they feel they get more value in return.

Provide superior service

There are dozens of studies showing that the majority of consumers consider customer service to be one of the top factors that influence their purchasing decisions. “In competitive industries, a company’s ability (or failure) to deliver a product or service in a timely, agreed-upon manner can make or break a customer relationship,” wrote HubSpot.

So, what does great customer service mean in practice? It means your sales associates know the details of your products or services inside and out and can answer virtually every customer question. It’s easy for a customer to shop at your business, get the information they need, and receive the item they purchased in a convenient and timely manner. And, if something goes wrong, it means your company goes above and beyond to make it right.

Don’t forget about the post-purchase experience, either. For e-commerce brands, everything that comes after the checkout — sending a confirmation email, shipping the product, tracking the package, the unboxing — plays a role in customer retention. Make sure your customers know they haven’t been forgotten after they buy from your brand.

Offer service tiers

Some companies offer different service tiers to make the customer feel like they’re getting a discount (or higher value for their money). Create pro, advanced, and basic levels of service that you can offer to make the customer feel valued.

“Start by pitching your premium offering. If the customer isn't willing to settle, introduce the next tier down,” wrote Huffington Post. “You're offering solutions that the client can use, and the customer still feels as though he or she has ‘won’ the negotiation.”

Tiered services allow the customer to purchase only what they need, and to feel like they’re getting a deal without your company slashing prices. Plus, service tiers can be applied to both products and services. Merchants who sell physical goods can offer models with different features or bundle items together at different price points.

[Read more: 5 Pricing Models and What They Mean]

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