How do you protect your margins when the market is in a downturn and so many competitors are fighting for a larger share of a shrinking cake?
Price competition is an ever-present reality in many markets.
It is particularly prevalent when budgets are tight, and the largest buyers try to use their scale to force prices down.
So how do you protect your margins when the market is in s downturn and so many competitors are fighting for a larger share of a cake that’s no longer growing and may be shrinking.
Of course it’s not as simple as a handful of competitors cutting prices to win business, simply to keep their sales figures high.
There’s always the possibility that larger, more dominant players, may see an opportunity to consolidate their position by driving competitors out of business, because they believe they can leverage major cost advantages or withstand losses for a longer period.
Such strategies are often misguided, as they may lead to a price war as the market realise what is happening and respond aggressively.
The irony is that that in treating freight services as a commodity, shippers are ignoring the features that set each service apart and reducing their own choice, through complicity, in competitors leaving the market.
For many forwarder the first they know of a potential price war with a competitor is when they get calls to re-tender for existing customers.
If the customer takes the service they receive for granted and believe it is the industry standard, your choices are very limited: Let the customer walk, or keep the business at a reduced margin.
Even if you have beaten off the competition, the relationship with the customer is inevitably weakened, as they have signalled their willingness to move.
Ultimately it is not possible to entirely protect your entire customer list from hostile competitor activity, but you can make them less susceptible to a move on price alone.
Headline the extra quality of your service, so that the customer does not see it as a commodity
Demonstrate the risks in taking low cost options
Develop ‘budget’ services for extremely price conscious customers
Innovate new added-value services
Co-operate with customers to take costs out of their transactions
Look for opportunities to save the customer money, without cutting prices