The threat of competition is one that drives business to act erratically at times. We fear that our competitors are working on a product that’s much better than ours. Or that they will offer theirs at a lower price. Or that new competitors are out there waiting to pick us off. Or that they’re stealing our secrets without us knowing.

So we safeguard, and we experiment, and we test. These are all good, healthy effects of a competitive marketplace.

But one question seems to come up again and again when I talk to marketers and small business owners in these kinds of competitive environments. Should I match my competitor’s price?

Chances are your company is not the cheapest. Few are. And so you may have asked this question of yourself or your colleagues at one point.

The answer is, as is often the case, it depends.

One reason this question does not have a straight answer is because it originates from a false understanding of price. In very few industries, price is all that matters. For the most part, consumers are interested in more than just price.

Consumers are looking for the best value. Value incorporates price, but it also includes benefits. Think of it this way:

Value = Benefits – Cost

To increase value you have two levers. You can lower cost. Or you can increase benefits.

If your products carry benefits over and above those of your competitor who is charging a lower price, you can justify the higher price. In fact, lowering your price might hurt you by masking the value that you are providing to customers.

So let’s get back to the question: Should you match your competitor’s price?

The answer is yes, only if you can’t beat them on value. If you’re offering the exact same thing they are at a higher price point, you can’t win.