A competitor lowered their price: what to do next

A competitor has dropped their price below yours. The instinct is to match it straight away. Sometimes that is right; often it is an expensive overreaction to a typo, a short promotion or a seller with no stock. This is a checklist for deciding what to do, in the order that saves the most margin.

First: is the drop real?

Before deciding anything, confirm that you are comparing like with like. A surprising number of apparent undercuts disappear on a second look:

• Same product? Check the model number, size, colour and bundle. A cheaper listing for the previous model or a smaller pack is not an undercut.
• Same total price? Add delivery. A €5 lower price with €7 more shipping is not cheaper for the customer.
• Same tax basis? Consumer prices in the EU should include VAT. A price read from a business-customer page may not.
• A plausible number? A price at half the market usually means an error, a clearance of damaged stock or a misread page — not a new market level.

Second: does it matter?

A real undercut is still only worth acting on if it affects your sales. Ask four questions:

1. Do they have stock? A low price on an out-of-stock product takes no sales from you. Check again in a day or two.
2. Is this a competitor your customers consider? A trusted national retailer is a different matter from an unknown marketplace seller with no reviews.
3. Is it temporary? Promotions with an end date, weekend sales and seasonal events often reverse on their own.
4. How much does this product matter to you? A best-seller that brings in new customers deserves attention. A product you sell twice a month does not justify a margin cut.

Then look at your own data. If your sales of the product have not changed since the competitor moved, the drop is not costing you anything yet.

Your six options

Matching is only one response. In rough order of how much margin they preserve:

1. Hold. Keep your price and watch. Right when the competitor lacks stock, is not credible, or the drop looks temporary.
2. Hold and add value. Keep the price but strengthen the reason to buy from you: faster delivery, a small accessory, a clearer returns promise on the product page.
3. Close part of the gap. Move part of the way down. Many customers will not switch for a small difference, especially to a store they know less well.
4. Match. Right for high-visibility products where customers compare directly and your margin allows it.
5. Beat. Rarely the right answer. It invites a response and can start a cycle of cuts that leaves everyone worse off.
6. Step back. If a competitor can sustainably sell below your floor, you may not win this product on price. Focus on products where you can.

A worked example

Illustrative figures, invented to show the reasoning.

You sell a popular robot vacuum at €349. Your floor, after cost, fees and minimum margin, is €318. Overnight, a large competitor drops to €319.

• The product matches exactly, delivery is free at both stores, and their page shows it in stock.
• The competitor is one your customers know. The product is in your top ten by revenue.
• Their page shows a "weekend deal" banner.
• Your sales yesterday were normal.

A reasonable response: hold for the weekend, check the competitor's price again on Monday, and watch your daily sales. If the price stays at €319 into next week and your sales fall, close part of the gap — to €329 or €335, say — rather than matching at a price only €1 above your floor. If the deal ends, you have kept your margin on every unit sold over the weekend.

Set up undercut alerts that are worth reading

Checking every competitor by hand does not scale, but neither does an alert for every price change. Alerts are useful when they are selective:

• Alert on undercuts, not on all changes. A competitor raising their price is good news that rarely needs action today.
• Use a threshold. A difference of a few cents is not worth an alert on most products. Set a minimum gap, in percentage or money, that would plausibly change a customer's mind.
• Include stock status. An undercut from a competitor who is out of stock should be marked as such.
• Filter out implausible readings. Prices far below the market are more often errors than real offers.
• Prioritise. Review alerts on your best-sellers first.

Luska's undercut alerts work this way: competitor pages are checked daily, out-of-stock listings are detected, and readings below half or above double the median are flagged as suspect so you can check them before reacting.

Watch for the start of a price war

One undercut is a decision. A sequence of undercuts on the same product, where each of you responds to the other, is a price war, and the usual winner is the customer at the expense of both sellers. Signs to watch for:

• The same competitor cutting again shortly after you respond.
• Prices falling while neither seller's sales increase.
• Your price moving towards your floor on more than a few products.

When you see this, stop responding automatically. Hold at a price you can live with, compete on something other than price, and let the competitor decide whether they want to keep selling at a lower margin. Automatic "beat the cheapest by one cent" rules are a common way to end up here — see repricing strategy for e-commerce for rules that avoid it.

Write down a response policy

The worst time to decide how to respond to undercuts is when one has just happened. A short written policy, agreed in a calm week, makes each case quicker and more consistent. It can be as simple as:

• Which products are "match-eligible" — usually your traffic products — and which are never matched.
• Which competitors count for matching, and which are monitored but ignored.
• The largest gap you will close in one step, and the floor below which you never go.
• How long you wait before responding to a promotion with a visible end date.
• Who decides when a case falls outside the policy.

A policy also makes your behaviour predictable to yourself, which is what lets you measure it. If every undercut is handled differently, you cannot tell afterwards which approach worked.

After you respond, check the result

Whether you held or matched, note what you did and why. A week or two later, compare your sales of the product with the period before. If matching did not bring sales back, the competitor's price may not have been the problem. The method is in how to measure whether a price change worked.

FAQ

Should I always match a competitor's lower price?

No. Check that the drop is real, that the competitor has stock and matters to your customers, and that your sales have actually been affected. Matching should be a decision, not a reflex.

How quickly do I need to respond?

For most products, within a day or two is fine, and waiting often shows that the drop was temporary. Your highest-traffic products in a busy season deserve faster attention.

What if a competitor is selling below my cost?

Do not follow them. Either they have better buying terms, or they are losing money. In both cases, competing on price for that product is unlikely to work.