Throughout the history of commerce, consumers have always been price sensitive. It's prices that often determine which vendor a customer selects. It's prices that forge loyalty. And it's prices that shape how customers view different brands.

Large retailers like Walmart and Target thrive on low price models. Customers flock to these stores because they know they can purchase products at the lowest prices possible. Small local businesses often crumble because they can't compete.

From an entrepreneurial point of view, it's important to recognize the significance of pricing strategy when launching a startup or growing a business. There are a number of unique strategies that work in different situations. One such strategy is price matching.

Over the past few years, we've seen both young startups and established organizations adopt this pricing approach with overwhelming success. As an entrepreneur, you should study this strategy so that you can make an informed decision regarding whether or not it's the right fit for your business.

Best Price Guarantee vs. Price Matching Policy

Before delving into the specifics of developing a strategy, let's begin by highlighting the difference between best price guarantees and price matching policies. They are very similar in nature, but have a couple of distinct traits.

With a best price guarantee, a company promises they have the best price on the market. In other words, they are constantly studying the competition and lowering their price so they'll be the low cost leader. However, in the instance that a customer finds a better price within a certain period of time after purchase, the company will honor that price and generally throw in a discount or perk. In other words, the best price guarantee protects the customer after purchase.

For example, UltraPress is an online custom apparel website that lists low prices, but also is willing to beat any better price found online by the customer. As a result, their aggressive Best Price Guarantee policy would theoretically result in an increase in conversion rate and buyer confidence.

A price matching policy doesn't necessarily guarantee that the company is offering the lowest price. It does, however, tell the customer that if they find a better price elsewhere prior to purchase, they will match that price. In most cases, price matching doesn't extend beyond the initial purchase. Furthermore, price matches tend to be just that--matches. Most stores won't offer an additional discount (at least in the form of dollars and cents).

5 Things to Think About with a Price Match Policy

While there is a place for best price guarantees, most startups choose to focus on a price matching policy if they're trying to implement such a strategy. If you're interested in price matching, then make sure you keep the following tips and concepts in mind:

Know Your Margins

A price match guarantee sounds great in theory, but you have to look at the financials. Can you reasonably match the competition penny for penny? The only way to determine this is by studying your competitor's prices and staying on top of your margins.

How do your numbers line up? You'll need a lot of cushion in your margins if you're going to adopt this strategy. Remember that you can't control the competition's pricing. If a competitor lowers the price on a product by 20 percent, can you still afford to match? Think about margins in terms of the future. You don't ever want to get in a situation where you can't honor a price or live up to your promise.

The Importance of a Differentiator

If you go with a price match policy, ensure you have a differentiator or tiebreaker in place. Simply matching the price of a competitor means you're on a level playing field with them. Why should the customer choose you over them?

There are a number of differentiators that can be used to make a price match policy stand out. This could include free help desk support, shorter turnaround time, free shipping, or future benefits. Find something that works for your business and market it alongside your price match policy.

Limit the Policy in Scope

When developing a price match policy, carefully define policies and rules. You need to limit the scope of your policy in order to avoid getting burned. Common restrictions include identical products only, online versus in-store, advertised prices versus over-the-phone prices, discounts and limited-time promotions, geographical markets, and more.

You'll notice that most large companies have very detailed price match polices and restrictions. Study the language they're including to get a better idea for how you want to shape yours.

Honor Your Customers

The worst thing you can do is get in quarrels with customers over your policy. While you want to protect the best interests of your company, you also have to honor your customers and respect the hard work they've put into researching and finding the best price.

It's better to lose a few dollars on a sale than it is to develop a reputation as a company with dishonest policies. Customers talk to one another and you can easily undercut your entire price match policy with just one or two heated confrontations.

If you have a price match policy, do everything you can to honor that policy under the rules you establish. Force customers to follow the rules, but don't let small caveats and specific language sever a relationship.

Measure and Test Results

As a startup, you should be testing absolutely everything. If you launch a price match policy, carefully collect and study the results. How often are customers using a price match? Do you see an uptick in sales volume? How much lower are competitor prices? Are they consistently lower? The answers to these questions should help you determine what to do moving forward.

Entrepreneurs: Do Your Homework

While price matching is a popular strategy among many businesses today, it's imperative that you don't adopt a similar strategy without doing your homework. There are pros and cons to price matching and you want to avoid some of the disadvantages that typically emerge when businesses rush into a strategy. Do your homework, study your industry, and determine whether or not a price match policy is right for your business.

Published on: Apr 11, 2016