Best Practices: Fight price wars with strategy

One of the most common topics discussed in meetings with contractors is the aggressive pricing of large national companies in building their market share.

Competing contractors often claim this has had a negative effect on pricing. They ask me, "what can be done about it?" I tell them to start by recognizing that these companies aren't going into a market pricing work to lose money. As far as I know they are profitable companies.

The ostrich syndrome

Even so, some companies react with resentment of the larger companies. Somehow they feel that the activity will stop and the market will return to normal. It's unlikely this will happen. The companies that feel this way are resisting change.

Other companies react to the presence of a national or big regional player by trying to adapt to the change. They may price their work lower to compete and not lose business to the big boys, who have developed a strategy to grow their businesses in what they realize is a changing, consolidating marketplace.

The best practices involved in dealing with competition revolve around good strategy driven by customers. Most companies' leader are too wrapped up in day-to-day fire fighting to develop strategy to position their company for ongoing success. Merely reacting to low pricing is not a strategy.

Keep looking ahead

Company leaders should try to create a vision of what the market will look like two or three years in the future. Who will be the best customers? What will the competition likely be doing? What will customers want? If larger companies are going after certain customers, those customers might not be the ones for you. Just because you had a value proposition that worked for a particular customer before, it doesn't mean that you do today.

You do not want to just keep up with competition and the market; instead think of "leap frog" ideas to jump ahead of the competition. It may mean finding a new ideal customer or changing the way you serve existing customers.

As you work your way through this busy season and planning for next year, set aside quality time to build a strategy that gets you out of the mode of reacting to other companies in your market. Focus on a strategy that fits your company to customers of the future.