The world of small business is so competitive these days that it’s not uncommon for a competitor to come along and undercut your prices. This can be frustrating on both a personal and a professional level, especially when you consider that the problem of a lower-cost competitor won’t simply go away on its own. When someone undercuts your business, you need to take action to keep your company thriving, and often this involves doing more than simply lowering your prices to match theirs. For example, here are a few ways you can separate yourself from a price-cutting competitor without sending you both into a tailspin.

1)      Call Out the Competition. When a competitor lowballs you, there’s a very good chance that they’re able to do so because their products or services aren’t of lesser quality than yours. Make this obvious to your customers. Use competitive positioning to establish yourself as the better choice by emphasizing the quality of your products and the lack thereof in the products of your competitors. Don’t go on a slam campaign – simply use fact-based statements to show why you are the more desirable brand.

2)      Reduce Your Overhead.  You might not be able to match your competitor’s prices without sacrificing quality, but you can close the gap by reducing overhead in your production and operations. For example, you might want to consider using a cheaper alternative to PayPal to accept payments or going paperless with your documents.  A few cuts here and there may allow you to lower your prices enough to remain competitive.

3)      Focus on Service. When you can’t win over customers with price, win them over with service instead. Research has shown that the best way to generate new business for your company is to provide such excellent service that your customers spread the word themselves. Over-deliver by including handwritten notes with your orders or adopting a liberal return and exchange policy. If you treat your customers better than the competition, they will remain loyal.

4)      Educate Prospective Customers. Give people a reason to trust your company by educating them about who you are and what you do. Publish non-promotional articles and white papers about your industry online, conduct seminars and offer tours of your facility. The more people know about you, the more likely they are to choose your products over your competitors.

Engaging in a price war with your lowballing competition will only end poorly for the both of you. If you want to retain your position in the market, you need to react intelligently. Take the high ground by showing customers why they should pay a little more for your products. If you can establish yourself as the better brand, you should be able to continue growing your business without sacrificing profits to do so.