A competitor cuts prices by 20%: should you match or hold your price?

First, are the two prices really comparable?

A lower displayed price may involve a smaller quantity, different shipping fees, fewer services or a minimum purchase. Compare the final checkout price, quality, delivery time and after-sales support before deciding you are being undercut.

Business.gov.au recommends using competitor prices as a reference while considering costs and the full value of the offering. This article uses that general business principle; it does not apply Australian legal rules to Vietnam.

A 20% price cut can reduce contribution by much more

In a hypothetical example using tax-exclusive amounts, a product sells for VND 500,000 with variable costs of VND 350,000 per order. Contribution is VND 150,000. A 20% price cut to VND 400,000 leaves only VND 50,000 if variable costs stay unchanged.

To preserve the VND 15 million contribution from 100 original orders, the new price requires 300 orders: three times the volume, a 200% increase. This is not a demand forecast. Additional staffing, storage or fees would require recalculation.

Formula: contribution per order = net revenue per order minus variable costs per order. Orders required to preserve total contribution = target contribution divided by new contribution per order, only when the denominator is positive. Contribution must still cover fixed costs; it is not net profit.

Three responses to consider before a broad price cut

Hold the price and clarify value if customers pay for speed, reliability or support competitors lack. Offer a basic package if you can genuinely reduce the scope of service. Use a limited promotion to test price sensitivity rather than discounting every order by default.

Bundles and gifts also cost money. Include marketplace and payment fees, packaging, shipping subsidies, variable advertising costs and expected return costs. Do not let growing revenue hide orders with negative contribution.

Design a test small enough to stop

Choose a product group and record the start date, end date, maximum budget and owner. Compare against a suitable period or group, noting seasonality, traffic sources and advertising changes so that price is not credited for every change.

Monitor total contribution, returns, on-time fulfilment and repeat purchases over an appropriate cycle. Define stop conditions beforehand, such as negative contribution or capacity overload. Exact thresholds should reflect the business’s data and tolerance.

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