Waging a price war can backfire on the attacker

Jan. 1, 2020
I had an interesting conversation a while back with a friend. We were sitting in a local club having a cold drink or two, and as often happens, the subject turned to work.

I had an interesting conversation a while back with a friend. We were sitting in a local club having a cold drink or two, and as often happens, the subject turned to work.

In addition to being a friend, he is also a repair shop owner and a good customer. We had just switched our shock absorber line, and we now carried the same brand as our in-town competition. As a matter of fact, just about all of our major lines are the same, and that's not hard to believe considering the consolidations and product re-boxing that goes on in this industry.

That being the case, how do you set yourself apart from the rest of the crowd? In this situation, our competitor was trying to do it with price. My friend's comments all centered on, "Why should I buy the same part in the same box with the same warranty from you when he's willing to sell it to me for less?"

Our competitor has also just transitioned from being privately owned to being part of a larger warehouse distributor operation. By all outward appearances, it's the same store, no change in personnel, but the middleman has been eliminated.

This means that he is now able to operate at the same margins while also offering lower pricing, an advantage we had held for a long time. Nothing wrong with that, really; it's the nature of all sales-oriented businesses, and I'm actually surprised it hasn't happened sooner.

What makes it difficult when this occurs, however, is the almost inevitable price war that follows. In this case, selected lines were offered to different shops in the area, almost like loss leaders. Margins on one or two select lines were cut very slim in hopes of drawing in more of that shop's business.

The lines offered were not the same at every shop, either; the reason being, I suppose, is that it's harder for the competition (us) to hit a moving target than a stationary one. That only works if you're willing to play into it.

Every shop owner knows that you have to maintain a certain profit margin across your entire operation in order to survive. In the situation we were in at the store level, we had very few options as far as pricing and product lines. Trying to fight a price war under those conditions means the only way to remain profitable is to economize in other areas that can adversely affect service.

Playing the pricing game can have an impact on your credibility as well. If you've been selling a customer parts at a price that you've both found acceptable, and because of pressure from another supplier you lower your price, at some point it will cross your customer's mind that you have been overcharging him all that time. I've had that type of conversation a few times, and it's usually not very pleasant.

It doesn't always come to that, however. Most shop owners are smart enough to realize what value-added service is and whether you're providing it in a way that is an asset to their business. We had to make a few concessions to stay in the game, but nothing too drastic.

Most shop owners are also smart enough to know that nobody ever made a profit by selling something at a loss. Sooner or later that loss has to be made up somehow, from somebody, and you can bet that you'll pay your share of it.

Unless, of course, you'd rather spend all of your time chasing prices rather than helping move cars through the bay.

Mike Gordon, a 20-year counter sales veteran, works the counter at Sanel Auto Parts, Concord, N.H.