Your client's main competitor has just cut prices by 20%. How should the client respond?

Two questions first. What does the client sell, and to whom? And why did the competitor cut, is it clearing stock or is this its new price? The client has three choices. It can match the cut, hold its price, or respond on something other than price. First, how many customers would really switch. I'd look at how price sensitive the buyers are. Second, what matching would cost. I'd look at the client's own costs and margins. Third, whether the competitor can keep this up. I'd look at the competitor's costs and how long it can afford the lower price. Then I'd compare the three options on profit over two or three years, not on this quarter's sales. I'd start with how many customers are switching, since the other two matter less if few do. Do we have sales since the cut?

Two questions first. What does the client sell, and to whom? And why did the competitor cut, is it clearing stock or is this its new price? I'll assume a premium paint brand sold through hardware stores at about a 40% gross margin, and a cut that looks permanent. The client has three choices. It can match the cut, hold its price, or respond on something other than price. First, how many customers would really switch. I'd look at how price sensitive the buyers are. A professional painter who buys every week knows the price of a can. A homeowner painting one room cares more about color. I'd estimate the loss in each group separately. Second, what matching would cost. I'd look at the client's own costs and margins. If that 40% is also the contribution margin, a 20% cut halves the profit on every can, so the client would have to sell twice as many cans to stand still. Even if matching kept every customer, holding earns more as long as the client keeps over half its volume. Third, whether the competitor can keep this up. I'd look at the competitor's costs and how long it can afford the lower price. If its costs are below ours, the new price will stay and we'd lose a price war. If it's selling near cost to win shelf space, it has to come back up, and we can wait. Then I'd compare the three options on profit over two or three years, not on this quarter's sales. The client could also launch a cheaper line for contractors, which keeps the fight away from its main price. I'd start with how many customers are switching, since the other two matter less if few do. My starting view is to hold the list price and defend the professional segment with targeted deals. Can I see sales by customer type since the cut?