Should you price match a competitor?

January 25, 2019

Have you ever heard a commercial say, “We honor our competitor’s coupons,” or “We price match.”

I know ten, maybe fifteen years back, Pizza Hut used to do this. The late-great comedian Mitch Hedberg had a hilarious strategy for how he would game the system.

“Pizza Hut accepts all competitors’ coupons. I wish I had my own pizza place: Mitch’s Pizzeria — this week’s coupon: unlimited free pizza.”

The “competitor coupon” strategy is simple, a business decides they would rather have a customer pay less with them vs. going to a competitor. When they weighed out the cost of coming up with their own sales, spending marketing dollars to promote, or research dollars on finding out what their competitors are doing, the easier/less expensive approach was to say, “Alright, if you find a better offer, we’ll match it.” (And then build in some legalese to avoid the Mitch’s unlimited free pizza coupon).

The saying is true: it is cheaper to keep a customer than attract new ones. We encourage businesses to do similar types of creative thinking with their Accounts Receivable department.

For example, the decision on whether or not to accept credit card payments. Or offering a rebate to incentivize faster payments. Is it better to receive a little bit less money now vs. waiting 30 days (or longer) for the check to arrive?

At first, accepting credit card payment or offering a rebate may feel like you’re losing money. It’s the same way a pizza place accepting an $8 coupon for their regular price $10 pizza feels like they’re missing out on $2.

But what if you start looking at the following questions:

  • How much does it cost the business to wait around for payment?
  • How much are we paying our AR team to follow up with our customers? Do we need to hire more people to help with our receivables? How much does that cost?
  • What percentage am I paying on a line of credit or a credit card when cash flow is tight?
  • What percentage am I losing with a factoring company?
  • What am I losing in turnover and recruiting costs if my sales reps are leaving to join other companies who can offer commission checks before the customer’s check comes in.

As you begin to add these different factors together, it can make the 2 — 3% credit card fee not seem like a big deal. And you may find that offering 5% rebates to customers ends up being a more profitable decision.

Sales are never made in a vacuum. As you begin to set or finalize your business and pricing strategy for 2019, make sure to take a look at the costs of Accounts Receivable as an important but often forgotten factor. Just because a sale is made, does not mean the cash is in the bank.

If you need help in this process, let’s talk.

FinanceFuel accelerates a business’ cash flow by speeding up Accounts Receivables. We remove the remedial processing and collection tasks so employees can focus on high-value work driving the business forward. You can learn more about FinanceFuel on our website or, if you’re interested in speaking directly with a member of our customer success team, send us a note (sales@financefuel.co) and we’ll get back to you right away.

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