What to do when a competitor undercuts you
Most undercutters are losing money. Don't follow them into the hole.
Check whether they're actually doing the same scope
Nine times out of ten, the 'cheaper' quote leaves out materials, warranty, cleanup, or permits. Comparing line by line usually reveals it isn't apples to apples.
Don't price-match in panic
Cutting your price to win one job teaches that customer (and your team) that your number is negotiable. The shop that holds the line keeps its margin and its dignity.
Sell the difference
Lead time, crew quality, warranty, references. State it plainly. 'We're not the cheapest, here's what you get that they don't.' Some customers still go cheap. Let them.
Take your version of this question further
This is one operator-tested angle on the question. Your shop, your size, your trade, and your team change the answer. Ask your specific version inside Ask a Shop Owner to get a response grounded in how owners like you actually handled it.