As a small business battling larger competition, you need to leverage any advantage you can find.  I’ve worked with many small businesses in this situation and I understand the pressure that it can create!

One of the first steps that many small business owners turn to is slashing their prices, but this is almost always a mistake. Getting in a price war with a larger company is a bad idea for many reasons, most obviously because of the fact that your competition has more resources and can afford to take losses for much longer than you can.

So what should you do to gain an edge against the larger competition? One critical advantage that you should exploit is your connection with the local market. Your competition may have deeper pockets and more manpower than you do, but you know the local market better than they do, and you can respond to trends and changing market conditions much more rapidly.

If you own a clothing boutique in Dallas, for example, you’re likely competing against Macy’s and other national retailers. Macy’s certainly has many more resources at their disposal than you do. But they can’t possibly be as plugged into the local trends as you are. Even if their store manager is very connected to the market, he or she is constrained by corporate requirements and can’t add and drop products as quickly as you can. So forget trying to price your goods for less than Macy’s. Instead, build a reputation for your store as the place to go for the hottest local trends. You’re not going to put Macy’s out of business, but you’ll build up a loyal customer base who will appreciate your local knowledge and your attention to their desires.

This concept holds true in nearly any industry. If you’re competing against giant national companies, you have the critical advantage of local knowledge. Focus on knowing what your customers want, and deliver it to them, with great customer services every step of the way. If you can do this consistently, you’ll never have to offer discounts to get customers in the door again.

Have you ever found yourself in direct competition with a much larger business? How did you respond? Did you learn any important lessons along the way?