It’s every company’s nightmare: a competitor enters your market with a similar product priced at a fraction of what you currently charge. You need a strategy for beating the low-ballers. So what’s the best way to proceed? On the one hand, all you need to do is drop your prices below the competition, and buyers will beat a path to your door. On the other hand, this approach will land you in a price war, and there are no winners in a price war — only survivors. Even if you manage to run your competitor out of business, chances are you may not have much of a business left when the battle is over. Luckily, it is possible to beat a lower-priced competitor without crippling your profits. That’s the good news. The bad news is that you’ll need to make major operational changes, and you’ll need to rethink how you communicate with customers. …

Today we share with you some valuable advice from the gurus over at BNET on how to cope with a market that shifts beneath your feet. (If you’re a business owner or manager, you know what the feels like — or you will, soon enough.)

#1: Select a Value Strategy.
Goal: Lay the groundwork for repositioning your product.

When customers prefer the lower priced of two items, it’s usually because they believe the cheaper item is a better value. To compete, you need to get the customer to value your product more than the competition’s — regardless of the price. According to Michael Treacy, coauthor of the classic bestseller The Discipline of Market Leaders, there are four market strategies that accomplish this:

1. Lower your prices. ….
2. Build a uniquely superior product. …
3. Create a hassle-free experience. …
4. Take ownership of the customer’s results. …

#2: Reposition, Readjust, and Reallocate
Goal: Make the internal changes necessary to support your strategy.

1. Lowering your prices = Changing manufacturing and distribution. To beat low-price competitors at their own game while also remaining profitable, you need to squeeze every last drop of inefficiency and cost from your manufacturing and distribution system. Example: If your competitor has outsourced its manufacturing to China, consider outsourcing your manufacturing to Vietnam, where costs are even lower.

2. Building a uniquely better product = Changing design and engineering. Determine through market research what features or design will prompt customers to see your product as being unequivocally superior to the competition. Then get engineering to build it. Example: If you’re launching a line of “designer” handbags, find out what fabrics and leather provide a look and feel that potential buyers view as “upscale.”

3. Creating a hassle-free experience = Changing sales and marketing. Figure out why it’s difficult to buy and use your competitor’s product, and then make it easy to buy and use yours. Example: Pioneer recently offered giant console TVs for sale at Home Depot, because many customers often already had a truck in the parking lot that they could use to haul the bulky item home.

4. Taking ownership of the customer’s results = Changing customer support. Build a deep bench of experts who really understand your customers’ businesses. Example: Under Lou Gerstner, IBM hired and retrained thousands of consultants, transforming the company from a mainframe computer vendor into a computing services vendor. …

#3: Promote the New You
Goal: Communicate your new value strategy to potential customers.

Once you’ve implemented all the operational changes required to reposition your product in the marketplace, it’s time to tell the world why your firm offers superior value. That means adopting a communications strategy that matches your market strategy…

If you offer lower prices, mimic the competition’s go-to-market strategy. Ensure that whenever a customer sees a competitor’s product, your product is right next to it — at a lower price. …

If you build a uniquely better product, target your advertising. Reach customer groups that are most likely to believe your product is superior by selecting venues that the competition neglects. …

If you create a hassle-free experience, generate positive word of mouth. Make it easy for your customers to sell for you. Consider “tell a friend” coupons or offer referral fees. …

If you take ownership of the customer’s results, create a presence as an industry insider. Get your sales consultants out to conferences, working groups, and industry-association meetings where they can work closely with decision-makers and develop consulting opportunities. Support your consultants with a wealth of case studies and reference materials. Example: The IT consulting firm Accenture promises to take responsibility for the successful implementation of the strategies it develops for clients.

#4: Prepare a Plan B
Goal: Secure long-term competitive advantage with a secondary market strategy.

You’ve got a new pricing strategy and a new way to market it to customers. That’s great, but do you really have what it takes to pulverize the competition? After all, strategy doesn’t occur in a vacuum. Just as you are responding to your competitor’s pricing moves, they will do the same in response to you. If you’re only better than your competition in one dimension, you run the risk that your competition will focus on that dimension to leapfrog over you. If you’ve got the best product, the competition may figure out how to make a better one. If you make things easy for customers, your rival could make things even easier. To prevent this, it’s important to simultaneously execute a secondary market strategy that supports the first. …

The challenge in executing a secondary strategy is that the four basic market strategies are, to a certain extent, mutually exclusive. Better products typically cost more to make. An “ownership of results” strategy often entails throwing resources at each customers’ problems until they are fixed.

Nevertheless, having a secondary strategy in place — even if you can’t make it fully effective — is a great way to keep competitors at bay because it makes it far more difficult for your rivals to beat you at your own game.

It’s a lengthy article, so we’ve had to summarize here. We recommend checking out the whole enchilada in order to get the complete details on creating competitive strategies that work for your market. Click here to read “How to Beat a Lower-Priced Competitor” by Geoffrey James in its entirety.