If you play the "we guarantee the lowest prices" game, you will usually regret the decision. Of course, only you can be the judge as to your approach to pricing your products and competing in your niche markets.
But I will tell you that unless you are into razor thin margins and moving lots and lots of products, undercutting competitors is a chancy game - at best.
Here's why:
1. There is no way you as a small business owner will ever be able to compete with the Walmarts of the world. Even in some smaller niches, the buying power of established and ongoing businesses will usually be much greater than yours. This means they will already be the preferred customer of the distributor or manufacturer and be getting the best prices possible.
2. If you choose to become known for the lowest prices in the industry, you will, by association, also be assumed to be impersonal, having lesser quality products and you will attract the type of customers that you may not necessarily want in the future. Many folks that shop the discount merchandise web sites expect to be able to haggle and dicker on prices.
3. Your margins, necessarily, will become very thin if you set low, low prices. If you can move lots and lots of products, you may be able to compete, but again, you will be directly competing with others in this same industry that are already established and running at full speed.
4. By undercutting other businesses, you will be seen as the "SOB" in the industry that is making it hard on all the other businesses to turn a profit. Of course, this label may or may not fit, or stick, but who wants to be known by all the other businesses as the bad guy? They will talk negatively about your business and you as a businessman to customers in the industry.
5. If you play the role of the cheapest in town, you will be expected to apply that label to all your products. You can't just be the lowest price around for one item, or one part of your business and not be expected to also discount all your other products. If you try to do this, customers will say you're just playing games in your advertising to get folks "into your store." It's the well-hated "bait and switch" sales tactic that most people despise.
6. There is a chance that you will be cut off from your suppliers. Price fixing aside, there are many industries (most?) that greatly discourage discounting. They don't want you selling at substantially less than all their other dealers. I know many instances where companies have been cut off from their distributors because they didn't uphold the unwritten but expected product "suggested retail" price.
7. I think a much better strategy than being known for the lowest prices in town is to have higher prices, but those prices will be seen as reasonable because you offer the highest quality products, unique products (that can't be compared head-to-head with others freely available), fast shipping (or download), and the best customer service there is. Believe me, passionate customers will pay more, even substantially more, for top of the line one-of-a-kind products.
Please consider these reasons why you should avoid being known for the lowest prices in town the next time you set a pricing strategy.
