Pricing woes?

What do you do when your competition starts dropping prices to unreasonably low levels? This Contractortalk.com thread addresses the issue. Some participants say they don't drop their prices; they have enough diversity in their product/service lines that they can get their price on some element of their business, even if competition is hurting others. Others create a three-tier pricing model; "Good, better, best" with differing service options (and set the Good, or lowest, price to match the competition). And still others make judgement calls, dropping the prices when they need to to keep the business flowing.

I'm truly wary of price reductions as a business survival/strategy, unless, of course, you can reduce your costs sufficiently to cover your overhead and earn a profit even at the lower prices (something I think most of us would find hard to do right now, especially with rising fuel costs.) Some people, I realize, take 'unprofitable' work in tough times to keep some cash flowing, but this is a dangerous, capital depleting exercise. You may need to make some hard decisions about reducing your labour and operating costs and hunkering down (or stepping up 'quick fix but low cost marketing approaches such as contacting previous clients or in some cases, canvassing for business).