A New Competitor Undercuts You Sharply

Why this matters

A new firm shows up quoting well under you, and within a month you have lost four jobs you expected to win. The instinct is to move your price that week. That instinct is wrong more often than it is right, and it is wrong in different ways depending on why their number is what it is. There are four distinct causes, they are distinguishable from the outside with observations you can collect for free, and the correct response to each one contradicts the correct response to at least one other. Matching a sustainable low price loses money forever; waiting out a sustainable low price loses the segment. You have to know which you are looking at before you do anything.

Stop the bleeding before you diagnose

Two things happen in the first fortnight that are hard to undo, and both should be blocked while you work out what is going on.

Do not reprice reactively, and say so out loud to your sales side. A price is easy to drop and slow to recover, because the customer's reference number updates on the first quote they see and revises upward reluctantly. A cut made in week two on a diagnosis you have not done yet is a decision you will carry for years.

Do not let the story reach the crew unmanaged. Technicians hear a competitor's number from customers before you do, and in the absence of an explanation they supply one, which is usually that your price is too high. That belief shows up in quoting behaviour within weeks and it is far harder to remove than to prevent. Tell them what you are doing: you are finding out where the number comes from, and nothing changes until you know.

What you should do immediately is start recording. For every quote from here: job type, whether the customer named the new firm, and the number if they will share it. Four weeks of that is the difference between a diagnosis and a mood.

The observations that separate the four causes

Collect these before you read the branches. Most are visible from the street, from their job postings, or from a customer who will show you a quote.

The single most discriminating row is the second. A shop that is cheap on the headline job and at market on parts, agreements and the diagnostic fee has made a pricing decision. A shop that is cheap on everything has made an arithmetic error or has a different cost base, and the wage row separates those two.

Branch one: a genuine cost advantage

Lower overhead is real and it is common. No premises, subcontract labour instead of employees, a two-person crew with no dispatcher, a truck-based model with no stocked warehouse, or purchasing scale you do not have. Their price is sustainable, they will not fail, and they can hold it as long as they keep the structure.

How you know: the discount is broad rather than targeted, their wages are at market rather than under it, and you can point at the specific thing they do not carry. If you cannot name the missing cost, you are probably in branch two.

Response: do not match, because you would be funding their structure out of your margin. Differentiate on what their structure cannot deliver - stocked parts, same-day response, employed technicians who are the same people every visit, work that has to be warranted - and concede the segments where none of that is worth paying for.

This is the branch owners least want to be in, and it is correct more often than they allow. If their model is genuinely leaner and the customer genuinely does not value what you add in that segment, the honest answer is that you do not compete there and should stop spending quoting hours on it.

Branch two: they do not know their costs

Their rate never recovered unbilled hours, or the owner's own labour is free, or there is no reserve against replacing the trucks. This is the most common cause of a very large gap and it is covered in full in a sibling card - see related: Competing Against a Shop That Does Not Know Its Own Costs, which derives the arithmetic and the two-to-four-year timeline.

How you know: cheap on everything including the small stuff, below-market wages with visible churn, owner on the tools full time, ageing equipment.

Response: protect your base and wait, without moving your own pricing. The critical discipline is that waiting is not passive. Their price does not die with them, so spend the waiting period on the things that survive their exit: agreements signed, referral sources fed, your own numbers verified so you know you are the one pricing correctly.

Branch three: a loss leader to open a door

A discounted entry service - an inspection, a diagnostic, a first-year agreement, a drain clearing - priced to buy a first visit, with everything after it at or above market. This is deliberate, bounded and often the most rational thing on the list to ignore.

How you know: exactly one service is cheap, and it is a low-ticket one. Everything downstream prices normally. There is frequently a stated end date, because the offer is a campaign.

Response: usually nothing. Do not discount your own headline work to answer a promotion on their entry work, which trades a large margin for a small one. If it is genuinely taking first visits from you, answer it in the same currency - your own entry offer, bounded and dated - or answer it with the thing that beats an offer on a first visit, which is being reachable when they call.

The exception that makes this branch dangerous: if their entry service is the front end of your maintenance agreement base, the loss is not the discounted visit, it is the agreement that follows it three years running. Check where their offer lands in your funnel before you decide it is harmless.

Branch four: they are buying share

Backed by a parent, an investor or an owner funding it from something else, with the price treated as an acquisition cost rather than a margin. It persists exactly as long as the money does.

How you know: the discount sits on the highest-value service rather than an entry one, everything else is at market, they pay at or above market wages, and the fleet and headcount run ahead of the revenue you can see them earning.

Response: you cannot outlast this by pricing and you cannot match it. Hold your base, keep their cost of acquiring each customer high by not losing anyone you already have, and watch for the turn. The discount ends when the funding decision changes, and it usually ends with a price increase rather than a taper, because it was never the business model. Shops that cut to match during this period are the ones still at the low price when the entrant raises theirs.

Working one case

A replacement-heavy shop lost work through a spring and ran the collection for a quarter.

What the log showed. 34 replacement quotes, 23 won and 11 lost, so a 68 percent win rate against a normal 80. On 9 of the 11 losses the customer named the new firm. Comparable numbers came back on 4 of those 9, and the entrant's quote ran between 0.68 and 0.74 of the shop's - roughly 26 to 32 percent under, call it about 30.

What the other prices said. Two customers volunteered other paperwork. The entrant's annual agreement was priced within a few percent of the shop's. A repair invoice a customer forwarded showed a parts markup consistent with the local norm. So the discount was confined to one service, and that service was the biggest ticket they sell.

What the hiring said. Three job postings in four months, with a stated wage band at the top of the local range. Nobody underpricing by accident advertises above market, because they cannot fund it - that observation alone eliminated branch two.

What the capital said. Four new wrapped vans in a first season, against a crew they were still hiring for. Equipment ahead of headcount is not how a lean operator runs, which made branch one unlikely as well.

The read. Branch four. The one point that separated it from branch three was which service carried the discount: a loss leader is a cheap way into an expensive job, and discounting the expensive job itself is not an entry mechanism, it is share purchase. The absence of any stated end date across three quarters confirmed it.

What the shop did. Held price. Took the quoting hours it had been losing on cold replacement leads and moved them onto its own base - a call to every customer with equipment over ten years old, which produced replacement conversations where the shop was the incumbent rather than the third quote. Set a review date two quarters out with one trigger written down: if the entrant's price holds and the win rate has not recovered above 75 percent, the shop concedes cold replacement leads as a segment and reallocates the marketing spend rather than cutting the price.

What would have flipped the read

Two observations would have changed the branch, and it is worth knowing which, because the response reverses.

If the entrant's agreement pricing and parts markup had also come back well under market, the second row of the table flips and this is branch one or two, not four. The separator between those is the wage band: at market with a nameable missing cost is branch one, below market with churn is branch two.

If the discount had been attached to a first-visit service rather than the replacement itself, and had carried an end date, it is branch three and the correct response is close to nothing.

Both flips are decided by evidence you can obtain in a fortnight and neither is decided by how the number makes you feel, which is the point of collecting before reacting.

The instrument that makes any of this readable

None of the above works without a win-loss log, and the shop that starts one after the entrant arrives has no baseline to compare against. Four fields per quote - job type, named competitors, outcome, comparable number if offered - kept continuously, is the whole instrument. A shop that has run it for a year can tell the difference between a new firm taking work and a normal seasonal dip in a single afternoon. A shop starting it in week two of a panic is measuring the panic.

Ask the comparable-number question plainly and without pressure, at the loss rather than during the sale: "Do you mind telling me roughly where the other number came in? I am not trying to reopen it, I just want to know what I am up against." Most customers will say. Record the ratio to your own quote rather than the figure, because the ratio is what tells you which branch you are in.

References

• See related: Competing Against a Shop That Does Not Know Its Own Costs, Knowing Which Competitor You Are Actually Competing With
• See related: The Price War and Why the Second Mover Loses More, Why Pricing Against Your Competition Is a Trap
• U.S. Small Business Administration, competitive analysis and pricing guidance for small business