Monday, December 2, 2013

Is Undercutting Your Competitors A Good Thing?

Cam Your Building Stand?
According to Wikipedia, Predatory pricing (also knows as undercutting) is a pricing strategy where a product or service is set at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors.

Ever since the Apple iPhone 5s appeared on the market, I have been selling a unique two piece thin lightweight case on Ebay.  For weeks, I was the only seller of this type of case, then other sellers began to appear and they undercut my price by 0.25 to 0.50 cents.  This may not sound like a lot of money, but when you are in the business to make money for both you and your supplier it is a big deal!

Undercutting can upset the balance of your business or product and while you still get customers in the doors you have to ask yourself is it worth it in the end for you? 

My response to being undercut was to drastically drop the price of the case, but I ran into unforeseen problems with my supplier, who raised his prices, further tightening the noose.  But because I wanted sales, practically at any cost, including my bottom line, I have continued to keep my selling price a full $1.00 below my competitors.

In turn, I have had record sales on this item.  According to Ilya Leybovich of, many businesses sell products with only a narrow profit margin.  Even Jeff Bezos of sells his Kindle E-Readers at cost.  He makes no profit at all! (CBS 60 Minuets).

It is true that undercutting erodes the market for whatever item or service you are selling and that lower prices can cause a product to have a bad perception, but in the end, multiple factors will only allow you to keep your undercut price in effect for so long.

The retail industry as a whole will tell you to become the best in your particular niche or market to keep the customers you have while gaining new ones, especially those not worried about the price, but what do you do if you are already up against the best?  Some suggestions are for you to hold on and wait for the tide to turn or if possible undercut the lowest price.

I believe that I am the best when it comes to selling this particular product.  I prefer to stay in contact with my customers and I offer a unique guarantee that others just can’t beat.  I:
  •  Send out two e-mails per order to inform my customers about its status,
  • I offer a guarantee that if the product does not arrive by a certain date, they get their money back and they get to keep the product when it does arrive
  • Behind the scenes I am in constant contact with my supplier to make sure that orders are being filled correctly.
So, is undercutting a good thing?  My answer is no, not especially if it is long term.

As for my unique product, I will only be able to keep it at the undercut price until Christmas then my supplier will raise the price far beyond my reach.  In business you win some and you lose some, but there are always products down the line just waiting to be discovered for you to sell them.

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