Game Theory · 5 min read
A competitor drops their prices. Customers start asking why you cost more. The pressure to match is immediate, and matching feels like the safe move. Often it isn’t.
Why matching is rarely as safe as it looks
If you match, your competitor has to decide whether to go lower. If they do, you face the same choice again, each time with less margin. Both businesses end up selling the same thing for less, and customers learn to wait for the next cut.
Before you respond, it helps to ask why they moved. A competitor cutting prices to clear stock behaves very differently from one trying to win share, or one whose costs have genuinely fallen.
Four questions to ask before you respond
- Why did they cut? Look at their recent news, hiring, stock levels and customer reviews.
- Which of your customers actually care? Some buy on price; many buy on reliability, service or relationship.
- What happens if you do nothing for four weeks? Track enquiries, renewals and lost deals.
- If you respond, what will they do next? Think one move further than feels comfortable.
The options you have
- Hold your price and strengthen the reasons to pay it: guarantees, service levels, speed.
- Match only for the customers most at risk, rather than across the board.
- Change the offer instead of the price: a smaller package at a lower price, so your main price stays intact.
- Compete somewhere else: a segment or service they don’t serve well.
The move that still works after they respond
The best response is the one that still makes sense after your competitor has reacted to it. That means writing down their likely next move for each of your options and checking which option you would still be happy with. It takes an afternoon, and it is usually cheaper than a price war.
If you are facing a decision like this, a Strategy Sprint is designed for exactly this kind of question.