Price war: should you cut your price when a competitor does

A competitor has halved their price. Your customers got their email, and some are already asking why you cost more. The first urge is to answer in kind. That's usually the worst option.

Why a price cut is more dangerous than it looks

Revenue drops for everyone at once. A 20% discount is minus 20% from every current customer, including the ones who never thought of leaving.
The competitor answers. You cut, they cut again. The winner isn't the best product but whoever has more money. If that's not you, the war is lost the moment it starts.
A price is hard to raise back. Customers remember the low price as the right one. And the whole market remembers it can be cheaper.
Different customers arrive. Whoever came for a discount will leave for the next discount. Such customers write to support more often and leave more easily. More in Customer churn.

What you can do instead

Hold the price and strengthen the product. Some customers will leave now, especially those who chose on price. The ones who stay care about what you do better.
Retreat into a narrow segment. Become the best for one specific group of customers, where a cheap copy falls short. The market is smaller, but the fit is sharper and the price holds.
Keep your own without cutting the price for everyone. For example, a temporary discount for current customers. It costs cash, but it doesn't drop the market price for good.
Cut a little. A small cut removes the sharpest reason to leave without wrecking revenue.

When cutting is worth it after all

If your margin is fat and your money will last longer than the competitor's, a price war can squeeze them out of the market. But that's a bet on cash, not on product. Count honestly: how many months you'll survive at the new price, and how many they will. How to count — in Unit economics in plain words.

How it works in Runway 200

In the game, every competitor has a character: one competes on price, another on speed, a third on breadth and integrations. Once a month they look at your price. Cut it, and the price competitor answers with a cut of their own while the others add features. Raise it, and someone takes over the segment that can no longer afford you.

Later a competitor may make their own bet and halve their price. After that, the ceiling your segment is willing to pay sags too: everyone has learned it can be cheaper. There are three answers: discounts for your customers for six months, hold the price and sell the value, or cut the price by ten percent.

You can start a war yourself, too. The “Fight on price” bet cuts your price by almost a third and takes share from competitors. But customers who came at too low a price stick worse, and discounts and promos eat a noticeable chunk of cash.

Try it yourself: the first ten weeks are free, no sign-up. See whether your cash survives a war you start.