Expert's Panel

A collection of timely and important topics posed to our panel of experts.

Back to Expert's Panel

    How can a market leader minimize or prevent an erosion of gross margins when competitors attempt to gain market share via market penetration pricing?

  1. It would depend upon how they are doing that. We have our list price but that usually is not what we are selling the product for to most customers. If indeed the market penetration pricing is through the discounts provided in the negotiation stage, a good technique is to have your account managers go out to the competitors main accounts where they have an upper hand. On those sales calls mention: ". . . with all the benefits we have shown you, we hope that you see they outweigh the very, very low prices that company XYZ is offering." Often they haven't offered those discounts to the older clients and that pretty much begins to upset their approach. This strategy is for competitors that are making a concerted effort to steal your key accounts through predatory pricing.
  2. Branding and perception is also a way to go. Take Kleenex for example. There are lots of tissues out there that are half the price and probably just as good, but Kleenex still sells lots of tissue. When price erosion comes, branding should be the first line of defense.
  3. Where capital equipment is concerned, the first thing you want to do is go immediately to the "value" of your products to your customer's products and the way your customer's are going to use them. "Value" can be many things like service and training. If your parameters are the same and the customer doesn't get any more "value" in all of the areas than the discounting competitor provides, you simply aren't going to get the business. On the other hand, if you have a differentiated product, and your competitor is pricing to go for market share at your expense, good selling will overcome the price differential. If the only issue is price, low price will always win.
  4. very simply better have the answer to this question: "Why should I buy your product?"