Kelly the Intern

Written by ProfitGuide Staff

A major rival is systematically undercutting my prices. I think he’s trying to bankrupt me. What should I do?
— Tracey R., Fredericton

What an ugly situation, Tracey. And what a weaselly way for your rival to try to win business and drive yours into the ground. I presented your dilemma to a variety of people in the know, from entrepreneurs and management consultants to business-school profs. They all offered similar advice.

Your best bet is to play up your competitive advantage. What do you offer that the competition doesn’t? If, historically, you’ve won on price alone, you may have to create new ways to differentiate your product so that customers can’t make an apples-to-apples comparison. Add value such as training, extended credit terms or post-sales support; or, provide discounts, perhaps for large orders or long-term contracts.

Also remember that business is built on relationships. Set up meetings to explain the situation to your biggest customers. Tell them how important their business is to you, and ask them what it will take to keep it.

In the end, if all else fails, you may have to meet each price cut with one of equal size. Eventually, your rival will come to the realization that you’re in it for the long term.

Most businesses slash their marketing budget during an economic downturn, but a lot of consultants say that’s the best time to increase their marketing spending. Do they know what they’re talking about?
— Brent C., Thornhill, Ont.

When the economy slows, a business owner’s natural reaction is to spend less, and the easiest cuts are often made in marketing and advertising, for which ROI can be difficult to measure. But the studies on the subject I uncovered indicate that when times are tough, maintaining or even increasing your marketing spending really can pay off.

Advertising exec Roland S. Vaile followed some 200 companies through the recession of 1923, and in the April 1927 issue of Harvard Business Review, he reported that the biggest sales increases throughout the period were rung up by companies that advertised the most.

In the mid-1980s, McGraw-Hill Research found that business-to-business firms that maintained or increased their advertising expenditures during the 1981-’82 recession averaged significantly higher sales growth, both during the recession and for the following three years, than those that decreased or eliminated their advertising budgets. By 1985, revenue growth among the aggressive recession advertisers was 256% faster than that among those that had reduced their advertising activity.

More recently, a 2001 Yankelovich/Harris study found that the vast majority (86%) of executives say that when a company advertises in a down economy, it makes them feel more positive about the company’s commitment to its products, and, more important, it keeps those firms top-of-mind when purchase decisions are made.

As for which marketing tactics to use during tough times, focus on what has traditionally offered you the best ROI. And consider trying things you couldn’t previously afford; newspapers, magazines and radio companies, for example, may all experience a decline in ad sales, so take advantage by negotiating bargain rates. Finally, spend time cultivating relationships with existing clients. It’s always great to have customers singing your praises, but it’s especially valuable during tough times, when people are most apt to reconsider their options.

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