Competition is fierce—understatement of the year, right? Especially in the type of global economy in which we live and work, where you’re not merely pitted against regional firms, but companies worldwide. Trying to thrive in a crowded marketplace can be difficult, if not at times feel impossible. So what do you do? How do you stay ahead of the pack and position your business as the more attractive one? This is where the term “race to the bottom” comes into play.
For those who aren’t familiar with it, it is the practice of slashing prices and thus undercutting competitors, even if your production or overhead costs are higher, all in the name of staying ahead. The problem is, this strategy almost always does more harm than good.
What Can Happen in This Vicious Race?
Let’s say you do your research; you understand precisely where competing companies stand as far as what they’re offering and at what cost, and so you opt to make sure that your price is lower in the hopes that customers are drawn to the savings. Initially, perhaps your tactic works: Your lower price equals more interest which translates into more robust sales.
Congratulations…except—consider the following scenario:
Company A is seemingly riding high as they are selling more units than their closest competitor. However, the lower prices are hurting profit margins, significantly, so much so that now they are forced to find alternative means and materials for production. Translation: lesser quality across the board. As the quality of their product noticeably drops off, customers quickly become disillusioned—this isn’t what they’re paying for after all. Sales drop off; Company A is left with a surplus of subpar units, until ultimately they’ve established a reputation for being cheap, as in reasonable prices and cheap goods.
This isn’t the type of scenario we imagine you want for your organization. So before you slash prices beyond that which you can sustain, give First Union a call—let us help you with affordable financing options that can make you more competitive in the right way!
This is part three of our four-part series: Business and Debt
Part1: Debt is not a four letter word
Part2: Globalization Defined
Part3: The race to the bottom
Part4: You’re lying when you say you don’t need to grow