What do I do if my small business competitor is a price-undercutting, social media jerk?
Feel free to share this on your social pages if your business has a jerk competitor!
I have a lovely, savvy, credible, ethical client who has built her little Brisbane business from a handmade hobby to a wholesaling little powerhouse. She has one problem, one of her competitors is a Jerk. The competitor is a much smaller business that goes hard to pick her customers off by using explicitly targeted price driven marketing – so in a nutshell “we’re $X cheaper than them”. What do you do if your competitor is overtly targeting your brand? Undercutting your prices? Being a social media jerk?
First, step back and get a little perspective.
If you’re talking Pepsi vs Coke, it’s a big issue. If you’re talking the only two hairdressers in a remote town….it’s an issue but your reputation will likely carry you, if you’ve got a good one. If you’re talking online boutiques where the majority of the competitor’s sales come directly through Facebook or a single market, the issue may not be as you think. Even if they’re stocking your exact range from the same selection of suppliers
In the case of my client, the competitor has little to no impact on search results and has just a smattering of potential referrals from very, very small businesses. The client is ranking number 2 (occasionally number one) for the main product that they have in common and a vast selection of other keywords. So, in reality, it’s just a Facebook page that’s the issue.
This is just another reason why it’s vital for small business to have more than just a Facebook page for longevity!
Second, the numbers….
The Jerk has 2000 fans. With Facebook reach the way it is, she’d be lucky to be reaching half that a week (chances are it’s much less). So, in reality, it’s only those 1000 fans seeing her content. If she has a typical conversion rate of 1%, that’s 10 sales per week. If her hard core pricing strategy results in greater sales, then let’s say 50 sales per week (so, so generous). The product itself is quite affordable and the average sale value is likely below $100… for my client. For the jerk, it will be much lower as she’s selling at cost plus less than 15% so the profit on each sale is almost nothing – and in fact, when you take hourly rate into account, she’s likely running at a big fat loss. But that’s OK right, once she steals all my client’s customers (she’s fixated on my lovely client with her solid reputation and strong network) she’ll be golden right? Not really….
Third, the initial impact
Let’s say the jerk manages to steal 10% of my client’s customer base, then what? My client loses the bottom 10% of her customer base, the ones who are focused on “cheap” who likely squabble over postage and are always after something for nothing. The customer base where the average time taken on each (low dollar value) sale is high and high stress. Instantly, my client’s hourly rate goes up – even if her sales take a little hit.
Meanwhile over at The Jerk’s place, she’s rolling in new customers, more work than she can handle because they’re all squabbling over postage and wanting something for nothing. BUT the sales are ROLLING in, what she’s doing is working! She redoubles her efforts to become the CHEAPEST BRAND IN TOWN. However, targeting my client gets fewer new sales as the bottom ten percent is already gone – the remaining customers love my client for her good reputation, quality products and because she’s just a good chick all round. The Jerk needs to go after a different competitor. Good news for my client, her industry is having the market segmented off so across the board her competitors are losing their cheap customers. Everyone is in a little panic and hating on The Jerk. Her reputation starts to plummet.
Fourth, The Jerk’s problem.
The Jerk has way more work than she can manage – she’s getting stressed and her kids/husband/mother/friends are complaining about how she’s working too much. It’s time to take on a part timer to help pack orders. And maybe a contractor to manage the Facebook page. She is feeling overwhelmed by her lack of business sense and needs to learn bookkeeping quick smart – and buy some software to help with that. Then the website goes down and she needs to get it rebuilt and to pay for better hosting so it doesn’t go down again and it’s still not ranking anywhere, it’s probably time for some SEO copywriting and some link building, in short, The Jerk wants to go pro.
But, despite all the payments coming in, there’s no profit coming in. She’s selling tons of stuff. She’s having sales every week and the customer base is growing like mad. But, she can’t afford a minimum wager for 4 hours a week to pack orders. How can that be? It makes no sense.
She’ll put prices up. Just a little bit. Not as much as the competitors, just a tiny bit.
Bam, she loses 10% of her customers and starts down the slippery slope – but no worries they were the lowest end of the lowest end. Who cares right?
She’s got enough money for her four hour a week worker but their four hours are FULL and she’s still working to capacity and having that person causes extra admin and she needs some new skills like management, and bookkeeping. Damn, another price rise. This time, she’s going to have to pull back on the “we’re cheapest” branding as she’s now slightly dearer than the next cheapest in the market.
Fifth, death to The Jerks
With each price rise, The Jerk loses her core base of customers. Those remaining wait for her sales only and will never, ever pay full price as they’ve been conditioned to expect her to have sales frequently. She has no branding to speak of as her brand was “the cheapest” and those quality customers who prefer value over cheap won’t even look at her as her reputation is shot to bits. With no brand, no reputation and no profit, The Jerk starts desperately reaching out to new customers. This means building up a whole new network who didn’t know her as “The Jerk” but as a whole new entity. She starts by doing desperate Facebook promotions and networking (posting “like my page pleaaaaaaaaaaaaaassseeee” in every group) and getting largely ignored.
The Jerk decides it’s all too hard. She puts the business up for sale. The industry know her and don’t want a bar of it. If she’s lucky, some newbie on the scene will buy it without doing any research and then spend a year re-educating the market. That’s if she’s lucky. Typically though, she’ll be forced to sell off her stock at a loss just to recoup what she can. My client and her reputable competitors will pick up a ton of cheap stock and have a little pay day. The bottom 10% will return to the fold, chastened and with more realistic expectations. Again, good news for my client.
So what do you do when there is a Jerk in your industry undercutting on price and targeting your customers? Try not to take it personally, focus on making your brand STRONG, on building your reputation, increasing your website’s performance, getting more referral customers, increasing CRM (customer relationships) – just being the very best you can be. Because in the end, you’ll come out of this on top!