Underselling

Underselling

Every industry has a Specific profit margin which is practised for a long time, though volatile and susceptible to market condisions.

In the interest of volume and growth, some players resort to grossly undercutting the competitors prices underselling their products or services. 

This practice is often tried by new entrants into the market.

Let us understand that offering short term discounts, freebees, and incentives to customers cannot be considered as underselling, since it is a part of the marketing strategy to gain some visibility.

The bigger brands with a good product range offering huge discounts on one of the products or services, for a special reason or season, would have allocated a budget and will work within the same, and hence their cashflow or profits of the business will not be adversely affected by the outcome of the campaign.

When the core product or services are undersold, it will hamper the growth of the business. Quite a number of such low priced products or services do get their due attention, and market growth, no doubt, but how many of them sustain in business for long is debatable.

When we either sell or service with either very low or nil margins, the same is done with the following objectives:

• Gain visibility
• Achieve volumes
• new customer acquisition
• Brand building

If we analyse the customers who jump at the offers, most of them are generally brand swayers and are always on the look out for deals.

This breed of customers are always price driven and not by the brand loyalty or quality standards of the product or service.

A product or service gets recognition as a brand not for the price line, but for the quality, delivery, post sale support and various other factors.

This simple understanding of this consumer behaviour makes us realise that the long term objectives are hardly achieved by underselling.

Moreover to achieve the required volume in this exercise, the promotional cost is also very high eventually making a big dent in the revenue of the business owner.

Being competitive is altogether a different ball game.

There is a very thin line between being competitive and killing the competition. Trying to kill competition only starts the rat race where there is no winner.