Dealing with a Low Cost Competitor

By M. Dana Baldwin

In our previous articles we discussed two different ways to deal with a lower cost, lower price competitor. In this article, we are going to explore another two ways we can compete effectively.

The scenario is that we have a new lower cost, lower price competitor entering our market place. We have looked into lowering our costs, differentiating our products and at forming a lower cost, lower price subsidiary to compete with this new entry.

Assuming there are no true advantages to be realized by forming a lower cost subsidiary, there is another option which should be considered. One is to switch from selling our products to selling results, or solutions, to our customers’ problems. In effect, lower price competitors turn basic products or services into commodities. If we can change what we do into offering products and services which comprise an effective package which solves a need our customers have, we can probably expand the size of the market segment which will be willing to pay more for these solutions.

Solution selling offers several significant advantages. There can be a large service component. This makes it much harder for a low cost producer to compete with, as it adds considerably to the embedded costs which must be borne. It can make evaluating the solutions provided versus the bare commodities offered by the low price producer much more difficult. With the passage of time and the building of ongoing relationships, the customer will probably find it more difficult to change suppliers, thus strengthening the market position of the solution provider. Finally, most lower cost providers have more limited products and services than will be required by the customer looking for the solution, again strengthening the relationship and the market position of the solution provider.

One must realize that the transition from a traditional provider of products and/or services to being a solutions provider may not be easy. The most common pitfall is to bundle products and services, then go looking for customers that need what is offered. A better result can be obtained by starting with determining customer needs and preferences, then working to design the optimal solution.

When you sell solutions, you need a much different understanding of your customer’s needs and preferences than if you are "only" selling a product or a service. In order to effectively meet your customer’s requirements, you need to be involved at an entirely different level. You need to become a part of the analysis so your people know what is expected and wanted by the customer. Your relationship becomes more intense and at a much different level than if you are merely providing a product or service. You, in effect, become a part of the customer’s team which is developing the solution, so you understand not only what is needed, but how it will be implemented and used. The result can be very positive when you have developed the right depth of relationship with your customer’s team, and should become very profitable for your company.

M. Dana Baldwin is a Consultant with Center for Simplified Strategic Planning, Inc.

He can be reached at

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