How to Win a Price War with Your Competitor

You’ve gone through the sales cycle. You’re negotiating with your prospect to close the deal and they drop a bomb: they’ve been negotiating with your competitor the entire time and the competitor has offered them a crazy low price.

Your prospect goes on to say that if you beat the price, they’ll do business with you instead.

How do you respond?

Get out of the price war immediately

It’s easy to see where the prospect is coming from. Getting a superior product for a heavily discounted price can seem like a win-win proposition… for the customer. But what about the company that gives the discount?

Price wars can take heavy tolls on individual companies as well as affect the overall profitability of an entire industry. The company that “wins” ends up significantly devaluing their product and many of their competitors also end up worse off than when they first joined the price war. Every price cut given by a salesperson has the potential to become the first shot that starts a full-blown price war.

Additionally, the customer ends up losing in the long run as well since they lose the strategic, long-term benefits that a premium cost helps to guarantee. (This includes benefits such as timely development updates, improved features, and highly responsive support teams, among others.)

So, what do you do when your prospect tries to start a price war?

Start by asking your prospect a few questions.

    “If money was no object, do you like our product more than theirs?”

    “Is our product more valuable to you than theirs?”

If your prospect says that the only difference is the price, the solution is simple: Tell them to go with the competitor.

This may seem counterintuitive, but by entering a price war you’re effectively turning your solution into a commodity. The prospect now views your sexy, high-value product as a generic cost center.

The problem with turning your product into a commodity is that there will always be someone around the corner willing to undersell you, and now you’ve set yourself up for a rat race to the bottom of the barrel.

Become a resource

After you tell your prospect to go with the competitor, go the extra mile. Become a support system for the prospect. Tell him, “If the only difference for you is the price, I’m okay with you going with the competitor. I will even help you get a better deal!”

Offer to send your prospect an email with a lower price than what the competitor offered. The prospect can then use this email to negotiate an even lower price.

Be totally upfront with your prospect. You don’t want them to buy your product simply because of a low price. You want them to become your customer because you offer the best product. If they want the cheapest solution, they can go with your competitor. Either way, you are on their side.

Never devalue your product

Your prospect may hem and haw.

Objection: I actually do like your product more, but it is difficult to justify paying so much more.

Closing the deal: If you agree that we are the best solution then you must understand we can’t devalue our product so dramatically. It would be unfair to our customers that we are already serving well and are paying a fair price. At the end of the day, you are in business to win at sales, not save a few bucks on a perceived basis.

Airlines are notorious for their price wars. For example, Airline A might cut the cost of a cross-country flight from $600 to $500. Airline B, wanting to compete for the business on that route, then cuts their cross-country fare to $450. Airline A might then respond by lowering its fare to $400, and then the process repeats. While this might be advantageous for the customer, the airlines are losing out.

In the 1990s, major air carriers in the US got into a price war, matching and reducing fares to gain a competitive edge. This resulted in new records for the industry – record numbers of air travel and record revenue losses for the airlines.

Lower prices might attract customers, but is selling your product at a loss and sacrificing distinctive value worth it?

Don’t deflate the value of your solution and don’t invest valuable time trying to justify your value versus your competitor. Never waffle on your value proposition. You know why your product is unique and how it helps customers. You know the value of your solution – stick to it!

Even so, some prospects may be intent on enlisting you in the price war.

Objection: Just think about it, then get back to me with the best you can do.

Closing the deal: The best I can do is what we just discussed. If you’re happy with that, we can close the deal right now.

When a prospect is trying to get you involved in a price war with a competitor, ask yourself if you really want to play that game. If the answer is “no,” don’t be afraid to tell your prospect.

Be clear with your prospect and say you won’t enter into a price war. You will, however, support him and help him get the best price. If price is the only thing he cares about, you want him to be your competitor’s customer.

Tell your prospect, “If you care about value, a great partnership, and success, I want you to be my customer.”

Conclusion

You need to be in the value business.

Be a premium solution in the market. If you work hard to create a ton of value for your customers, you’ll form a strong partnership in which you get a respectable amount of value back from them.

Avoiding the price war has many advantages, but at the end of the day your position may turn people that would otherwise nickel and dime you into people that are happy to pay a premium price to know they’re working with the best people in the business.