Nearly two-thirds of New Zealand business leaders expect fuel prices to eat into their net profit margins over the next year, according to the May 2026 BDO Business Performance Index. At the same time, only 49% feel positive about their current overall performance. When costs rise and confidence stays low, the reflex is to slash prices. But the research suggests a different path — one that doesn’t depend on being the cheapest option in the room.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Discounting feels like the quick fix, but it rarely builds a durable business. The BDO data shows that New Zealand’s unique market challenges — thin domestic demand, high input costs, and geographic isolation — mean that competing on price alone can quickly become a race to the bottom. What works better is competing on value: offering something that justifies a higher price through expertise, convenience, or a tightly defined niche. Here’s what you actually need to know.
Competing on value means focusing on the unique benefits your business delivers — not just the price tag. It’s about making customers willing to pay more because they get more. That could be faster service, deeper expertise, or a product that solves a specific problem better than anyone else.
What happens when you only compete on price
The BDO index reveals that 29% of business leaders expect net profit to improve over the next 12 months, while 46% expect margins to hold steady. That leaves a quarter who anticipate worse margins. For those already discounting heavily, the outlook is grim. Input prices rose 2.9% in the June 2026 quarter, according to Stats NZ business price indexes. When your costs go up but your selling price stays the same (or drops), margins get squeezed from both sides.
The consequences show up in the insolvency figures. Nationally, 7% of businesses see a high likelihood of being unable to meet financial obligations in the next year. But that number jumps to 19% for construction firms and 3% for retail. Construction has already seen 751 firms liquidated last year. These are the sectors where price competition is fiercest and margins thinnest.
What I tend to notice is that businesses that compete on price alone often end up cutting corners — on service, on quality, on staff. That erodes the very thing that could have set them apart. The data backs this up: Auckland businesses, which show the highest positivity on current financial performance (57%), also report the lowest insolvency risk (5%). Proximity to customers and ports helps, but so does a focus on value rather than discount.
Three mistakes that keep NZ businesses stuck on price
Treating small size as a weakness
Nearly 97% of local businesses employ fewer than 20 people, and many stay small their entire life. The Conversation article on NZ productivity argues that this isn’t necessarily a problem. The real issue is being small without specialisation or technological leverage. A two-person AI-enabled venture serving global customers can generate more value per worker than a 20-person domestic service firm competing in a crowded local market. The mistake is assuming you need to get big to succeed.
Ignoring AI and technology adoption
48% of business leaders feel positive about leveraging new tech and AI in the next six months, but most are still early-stage, using AI for discrete tasks rather than strategic integration. Cost and margin pressure, along with risk sensitivity, limit investment. That’s a missed opportunity. AI tools can handle coding, design, analysis, writing, and administration — tasks that eat up time a small business owner could spend on higher-value work. AI-powered marketing platforms like MagicFit can create ads, videos, and social posts, reducing the need for a large marketing team.
Competing on price without differentiation
When every competitor in your market is chasing the lowest price, customers have no reason to stay loyal. The BDO data shows that cash flow (37%), supply chains (39%), and business pipeline (40%) are among the lowest-scoring business performance attributes. These are the areas where a value-focused business can stand out — by offering better reliability, faster delivery, or more personalised service. Without differentiation, you’re just a commodity, and commodities get squeezed.
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| Approach | Pricing strategy | Customer loyalty | Margin resilience | Insolvency risk |
|---|---|---|---|---|
| Discount-focused | Lowest price wins | Low – customers leave for a better deal | Weak – any cost increase hurts | Higher – especially in construction (19%) |
| Value-focused | Price reflects quality/service | High – customers stay for the experience | Strong – can pass on cost increases | Lower – Auckland businesses show 5% |
How to build a value-driven business in practice
Specialise in a tight niche
Small, highly productive economies like Denmark, Finland, and the Netherlands thrive by specialising in what they do best and integrating into global value chains. For a New Zealand business, that means picking a narrow market where you can become the go-to expert. It could be a specific type of engineering service, a unique agricultural product, or a digital tool for a particular industry. The MBIE competitive business settings page notes that the Government has passed the Patents Amendment Bill to provide more certainty for businesses wanting to innovate. That kind of protection matters when you’re building a specialised offering.
Adopt AI and technology to amplify output
Productivity is measured per worker, not per firm. A two-person team using AI can produce more value than a ten-person team without it. The BDO index shows that mid-market businesses (61% positive about overall performance) are more resilient, partly because they invest in technology. For smaller businesses, the barrier is often cost and capability. But AI tools are increasingly affordable. Shopify’s AI-powered ecommerce platform lets small sellers manage inventory, payments, and multichannel sales without a big IT budget. For remote-work security, ExpressVPN helps protect business data when teams work from anywhere — a growing need as flexible work becomes standard.
Use government support to reduce costs and invest
The Government’s Investment Boost, introduced in Budget 2025, allows any business to immediately deduct 20% of the cost of eligible capital assets from their tax bill in the year of purchase. That lowers the upfront cost of equipment, machinery, or technology. The goal is to encourage investment in productivity-lifting assets. To claim it, you need to keep records of the asset purchase and include the deduction in your tax return for that income year. It’s a straightforward way to improve cash flow and make investments stack up financially.
Open Banking, enabled by the Customer and Product Data Act, is another tool. From December 2025, major banks must provide open banking, making it easier for businesses to switch lenders or access better financial products. That can lower financing costs and free up capital for value-building investments.
Build resilience through financial buffers
The BDO data shows that Auckland businesses are weathering the economic uncertainty better, partly because of proximity to customers and ports. But financial resilience also comes from having cash reserves. 42% of business leaders feel positive about current financial performance, up 7% from September 2025. That improvement suggests some are managing costs better. For a value-focused business, maintaining healthy margins means you can absorb shocks without slashing prices. JustAnswer Business offers access to legal, HR, tax, and accounting advice, which can help you navigate compliance and avoid costly mistakes that eat into margins.
Frequently asked questions
Can a small business really compete without cutting prices? ▾
How do I start specialising my business? ▾
What if my industry is very price-sensitive, like retail? ▾
How much does AI cost for a small business? ▾
Is the Investment Boost worth it for a small business? ▾
What about open banking — how does it help? ▾
Why staying small and smart might be the best move for 2026
The Conversation article makes a compelling case: some of the most innovative and resilient firms of 2026 may be those that remain deliberately small, use AI to expand their capabilities, and build reputations in tightly defined global niches. New Zealand’s productivity problem isn’t about size — it’s about being small without specialisation or technological leverage. The businesses that compete on value rather than discount are the ones that invest in their unique strengths, adopt tools that multiply their output, and build financial resilience to weather the ups and downs.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read Building Resilient Supply Chains: A Critical Challenge for NZ Businesses.
Sources and Further Reading
Collaboration or Competition: The Key to Success in the NZ Market — Explores how NZ businesses can work together to overcome market challenges and build value.
The Generational Shift: Adapting Your NZ Business to Millennial and Gen Z Customers — Looks at how younger consumers value experience and purpose over price, a key part of value-based competition.
BDO (2026). May 2026 Business Performance Index. 🔗
Ministry of Business, Innovation & Employment (2026). Competitive Business Settings. 🔗
The Conversation (2026). NZ’s low productivity is often blamed on businesses staying small — that could be a strength in 2026. 🔗
Stats NZ (2026). Business price indexes. 🔗
