Prices & promotions
Should you match a competitor’s promotion? The margin rule
The alert lands at 9:12: your main competitor has gone to −20% on the product you sell most. You have two reflexes available. The first is to match within the hour so you do not lose orders. The second is to wait and hope. The margin rule offers a third: five questions, in a fixed order, that give you a defensible answer before lunch. It does not always say no. What it always says is what the yes would cost.
By The Rival teamPublished 8 min read
Why a rule beats case-by-case judgement
Every competitor promotion arrives at the wrong moment, with real emotional pressure: you picture your customers comparing, hesitating, leaving. Deciding under that pressure produces two symmetrical mistakes. Following too fast, and turning a three-day campaign at the competitor into a permanent cut at your store. Doing nothing on principle, and letting through a campaign you could have countered cheaply on two products.
A rule written in advance takes the decision out of the moment. It does not replace what you know about your market; it organises it. The five steps below take ten minutes once you know your unit costs, and they apply equally to a 10% cut on one product and to a −30% campaign across a whole range.
Step 1: qualify the promotion before you price it
Most competitor promotions do not deserve a response, and you can tell by reading the page, not by opening a spreadsheet. Four questions are enough:
- Is it the same product? Compare the size, the pack, the bundle and the delivery terms. A “−20%” on a smaller format than yours is not a price cut.
- How long? A visible end date, a countdown or a “until Sunday” signals a campaign. A struck-through price with no date that has held for ten days is a repositioning.
- How wide? A discount on three references is not countered like a discount on the whole range. Respond only on the products in direct competition.
- What is the likely reason? Sizes disappearing, a “last units” mention or a product gone from the home page suggest a clearance, not a price war.
If the promotion is short, narrow and looks like a clearance, the rule stops here: you note the campaign and do nothing. You have just saved margin you would never have earned back.
Step 2: work out the break-even, not the impression
If the promotion survives step 1, you put numbers on it. The question is not “am I more expensive?” but “how many extra sales would my own discount need for me to earn what I earn today?”. With m your gross margin rate and d the discount, the extra volume you need is d ÷ (m − d). The formula and its limits are explained in the guide on matching a competitor’s discount.
Two precautions. Use prices excluding tax and a complete unit cost that includes packaging, payment fees and, if you offer them, shipping and returns. And if the discount is equal to or larger than your margin rate, there is no break-even: every discounted sale loses money. The discount break-even calculator does the maths in ten seconds, with a shareable link for your co-founder or your accountant.
Step 3: compare the break-even with what you have already seen
A break-even of 50% more sales is neither good nor bad on its own. It becomes an answer when you compare it with your own history: during your last −20% campaigns, by how much did this product’s volume rise, during the campaign and in the two weeks after? Your Shopify admin holds that answer; nobody else does.
If your best past campaign did +30% and the break-even asks for +50%, the discount will cost you money even if it “works”. If you have already seen +80% on this product, following is defensible, provided the lift is not simply next week’s orders pulled into this week. Always look at the period after the campaign: a discount that moves purchases without creating any has gained nothing.
Step 4: pick a response, and it is not necessarily a discount
Matching is only one response out of five. The other four usually cost less, and they can be priced too.
| Response | When it makes sense | What it costs |
|---|---|---|
| Do nothing | Short, narrow or clearance promotion; your price already close to the median | Nothing, except a few very price-sensitive sales over three days |
| A bundle or a gift instead of a discount | You want a visible answer without touching the unit reference price | The cost of the added product, often below the equivalent discount |
| A free-shipping threshold | Your average basket is close to the threshold; the competitor’s promotion is on a low-priced product | Shipping on the baskets that cross the threshold, offset by a bigger basket |
| A targeted discount | Two or three references in head-on competition, not the range | The break-even from step 2, on those references only |
| Match | The break-even is below what you have already reached, and the competitor’s promotion lasts | The break-even, plus the risk that the cut becomes the new expected price |
A discount leaves a trace: the customer who saw −20% will wait for −20%. A bundle, a gift or free shipping can be withdrawn without anyone calling it a price rise. That is often the deciding reason to prefer those responses when the break-even is tight.
Step 5: set a guardrail once, then hold it
The last step is done once, with a cool head: write down the gross margin rate below which no promotion is launched, per product or per category. That guardrail turns the first four steps into a mechanism. A discount that would fall below the floor is refused before the break-even is even calculated; a discount that stays above it is judged on the break-even and your history, without debate.
The guardrail also protects against slow erosion: three successive 10% matches that nobody really decided, and the category has lost a third of its margin in a quarter. With a written floor, the third match is refused, and you see it coming from the second.
- List your twenty most exposed products with their price excluding tax, their complete unit cost and their margin rate.
- Choose a margin floor per category, for example the margin you need to cover fixed costs and acquisition.
- Write the rule in one sentence and share it with anyone who can launch a promotion.
- At every alert, run steps 1 to 4; record the decision and its reason, even when the decision is “nothing”.
When doing nothing is the best decision
Doing nothing is not inaction; it is a decision that can be justified and recorded. It is the right answer when the promotion is short, when it does not touch your directly competing products, when your price is already close to the market median, or when the break-even is above anything you have ever reached. In those four cases, following means paying for sales you would have made anyway.
It is also the right answer when you do not have the numbers yet: better to wait twenty-four hours and calculate than to discount blind. A competitor promotion that lasts will still be there tomorrow; one that does not last did not deserve a response. To set up the monitoring upstream, our article on tracking competitor prices explains what to watch and how often, and the Black Friday one applies this rule to the period where it matters most.
How Rival applies the rule for you
Rival reads your competitors’ public product pages every day and spots promotions the same day, with the price before and after and the capture the information came from. Before it proposes a discount, it projects the effect on your margin from your costs and refuses anything that falls below the guardrail you set. When following would cost you money, it says so and proposes doing nothing, with the reason. The decision stays yours: nothing changes in your store until you approve it.
