Retail Strategy Secret #17: Pricing Below Competition

Pricing-Below-Competition

Welcome to the seventeenth post in our series of “Retail Strategy Secrets”!  Here you will learn the angles, approaches, and tactics retailers are using every day to try and separate you from your hard-earned cash.  Understanding these unlocks the door to spotting great deals, and you never want to pass up a Dealicacy…

Pricing Below Competition

Pricing below competition (PBC) simply refers to the strategy of pricing products lower than those of one or more competitors. This strategy is enhanced if the retailer is positioned well to negotiate the best prices, has a low cost structure (or can reduce it), and/or has a sound marketing strategy with a clear goal.  Often, the goal of this practice is to simply outsell the competition for a key product or drive time.  At the other end of the spectrum, however, it can be employed as a means of… putting a rival out of business. 

You could say that something in-between these two extremes hastened the demise of Circuit City.  Although definitely not the sole reason (some say it was lack of innovation), Best Buy took advantage of its large cash position in 2008’s recession to shave a little more off of its markups.  We’ll let you decide if that strategy was geared more toward pleasing customers or gaining market share.

Regardless, PBC is difficult to maintain over the long term – especially for small businesses up against goliaths with very large economies of scale (think Wal-Mart vs. Mom & Pop stores).  It is for this reason, sustainability, that even the larger retailers steer away from PBC.  Without a goal or purpose in mind, there is no clear point and/or time to stop – no exit strategy.  No horizon on which to anticipate a return to better profitability.  And that can make your shareholders very angry. But that’s a different topic altogether.

A sustainable means of implementing PBC involves price matching.  This can be offered as a flat match, or by beating the other price by x%.  Further, price matching often requires the published, current ad of a competitor.  This is not only a means of protecting the retailer from something that is not sustainable, but also a nice way of gathering evidence useful for ratting out a competitor that isn’t adhering to Minimum Advertised Pricing policies.

PBC in any form is always a nice thing to find as a deal hunter.  However, awesome Dealicacies can be uncovered by watching for “Loss Leaders”… conveniently enough, the topic of my next post!

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