Underbidding

Underbidding refers to the act of offering a price or bid for a product, service, or contract that is lower than the perceived fair market value or the price offered by competitors. It's a pricing strategy often used to gain a competitive advantage by attracting customers or securing contracts, sometimes at the expense of profit margins. This tactic can pressure rivals and potentially lead to a 'race to the bottom' in pricing, or in certain markets can be considered predatory pricing if set too low to maintain a competitive edge.

Underbidding meaning with examples

• The construction company engaged in underbidding to win the city's contract. They offered a significantly lower price than other bidders, hoping to secure the project even if it meant sacrificing profits. The council questioned if this could affect the quality of materials used.
• During the auction, the buyer employed underbidding. They strategically placed bids slightly below the perceived value to test other bidders' interest, creating a sense of urgency. This allowed them to potentially buy a vintage painting for less than it was worth.
• The consultant was accused of underbidding to win a contract from a client who later claimed the service level fell short of expectations. This tactic secured the work but resulted in increased workload and pressure for a quick return in investment.
• As the new marketing firm entered the market, they relied on underbidding their competitors. The company's lower prices secured several clients initially, although the aggressive strategy put significant pressure on the firm's profit margins and employee salaries.