Undercut

Posted in Marketing and Strategy Terms, Total Reads: 518
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Definition: Undercut

To offer a good at a price that is deliberately set at a lower price in order to compete the competitors. In attempt to close the sales cycle the companies reduces their prices. This is also known as price slashing which is done in order to eliminate competition by reducing the retail price below the normal standards. This will help to undercut the competition and offer the consumers best prices. For example: Walmart used the term rolling back prices when they cut prices on certain products to gain advantage. But this can led to disadvantage as customer can sense that the original prices has been inflated and thus they can be reduced to such an amount suddenly.


Thus the customer may loss respect and trust from the brand, and feel that the brand has prices that are high to begin with. Even by cutting price in customer service, it may led customers to belief that the products and service provided might not be worthy enough. Mostly the sellers forget to lean toward value rather than price. Thus in order to helping the customer understand what they are purchasing, instead of reducing the price, value advantage should be provided in order to earn customer trust. Thus price based selling should be combined with value based selling in order to close the sales cycle. The reason for not undercutting:

1. It allows to set up the base of customers on the quality of service thus takes off the competitor’s price pressure.

2. Customer satisfaction can be gained more easily. It will reduce unsustainable commitments and service will be provided according to the price being paid.

3. Loyal customer base can be built which will give more confidence to the business and direct price wars can be avoided with the competitors.

 

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