TOUGH CALL: Apples v. Oranges, Products Edition

How can you compete on price, when customers are comparing different quality products that appear identical?

When you launched your combination lumberyard/hardware store in the late 1990s, there were a few fundamentals that you knew you’d need to make part of your company’s DNA for it to survive long-term. First, to attract and retain good people, you’d need to pay them at or above market rates and give them an opportunity to truly contribute to your company’s success. Second, you’d carry quality products. As the sign on your office wall reminds you every day, “The bitterness of poor quality remains long after the sweetness of low price is forgotten.” Third, you’d make sure that you and your team would do your very best for each and every customer—whether they’re a homeowner, a remodeler or a professional builder.

As your company approaches its 20th year in business, you couldn’t be more proud of your team—and what you’ve all built together. You’ve got a great reputation in your market. You’re not the cheapest, but you offer solid value for the money. To keep the price-conscious shoppers coming around, you’ve maintained a policy to match prices on comparable products from local, stocking merchants. You figured the worst-case scenario would require sacrificing a little margin to protect your sales. Here’s the story.

You noticed one of your good, longtime customers in your store the other day, so you stopped to say hello. “It’s good to see you, Bob, but I’ve got to tell you, some of your prices are way out of line with what the big box down the street is selling them for,” he explained. “Like this product, for instance. You’re asking more than double what their similar product is priced in their current ad.” You assured him that you’d match their price—and you did. But later, when you looked up your cost on that item, you were surprised to see that you were selling it for minimal markup. Matching the competitor’s price on a “similar item” meant you just sold it for 20% below your cost. The worst part: this wasn’t an isolated incident.

Naturally, you called your supplier to share this story, and to see about getting your costs adjusted. Surely, there’d been a mistake. “It’s no mistake, Bob,” your vendor explained. “The products look similar, down to the last detail. But the version you sell is made of better quality components. Your competitor buys a knock-off product that appears the same—but isn’t. That’s how they can sell it for less and still make a profit.”

The same situation has reared its ugly head several more times. Your competitor advertises that their products perform as good or better than the expensive name brands—but you know it just ain’t so. How can you change your price-matching strategy without losing sales?