Never Ever Compete On Price

As a small business, trying to play the low price game is a losing strategy, yet ironically that is the strategy so many small business owners start out with. This is a fear based strategy which is the first sign that it is the wrong one for small businesses. A flourishing business does not operate with a fear mindset. It runs on a plan of positive self expectancy and of wealth creation and charges full price for its value. By utilizing the following six steps your company can start to flourish too by maximizing your profit margins and not succumbing to the temptation of useless and many times dooming price cuts.


1. Don’t be afraid to charge what you are worth.

The old saying, "You get what you pay for," is a commonly held truism. And perception is reality when it comes to marketing your business’s products and services. A flourishing business centers its strategy on value, and value by its very nature has a high price tag. When people see a high value, they expect to see a high price. If you looked at a Mercedes and then saw an unusually low price tag on it, they would immediately think, "What’s wrong with it?" So, if you proceed to tout all the great benefits of your product or service, your superiority to your competitors and your high quality or service and then slap a low price on it, you are planting this same question in your customer’s minds. What’s wrong with it? Contrast that with using a high price to differentiate yourself in a crowded marketplace, causing you to stand out and have people thinking, "I wonder why they are so expensive, they must be really good." By discounting your price, you are sending the message to your customers and potential customers that your value is that of a jalopy not a Mercedes.


2. People like paying for quality.

People do buy high priced goods. They even buy the highest priced goods. Think Dom Perignon, Tiffany’s, Prada or Gucci. People love to splurge. They like to buy the best and spoil themselves. Being the low price provider is certainly not the only way to go. Of course many people go for the lowest priced item, we’ve all done it, but sooner or later many consumers get burned. They find the quality of the low priced provider problematic and they get sick of it. Or they get fed up with bad service, and decide it is worth paying a bit and have a more enjoyable consumer experience. When you look at how other top brands have positioned themselves successfully you can see that coming in high on the price end is not always a negative. To some people it is in fact a positive. This is not just a business to consumer phenomenon; plenty of companies that sell to other businesses have also taken this approach as a way to gain a market leadership position. Law firms, software companies, manufactures, consulting firms and almost every industry has one smart guy positioning as the premium player in the space and charging high prices and really delivering. There are also a bunch of low cost players trying to undercut him and focusing their pitch solely on price. Do you think the premium player is worried? Heck no, he is laughing all the way to the bank.


3. Take your focus off price and onto to value.

The key is to find out what you can provide better than anyone else. Make your value worthy of a higher price and then find the right customers who will recognize the value that they are getting and be willing to pay for it. Rather than asking yourself how you can beat your competitors on price, ask how you can provide your customers more value. People are pressed for time more now than ever before. Despite technology’s claims that it was going to save us all time, we are now busier than ever. Anything you can do to save your customers time, provides them with more value that they are likely willing to pay for. To many people time is more valuable than money because it is finite. Combining other complimentary services as part of a bundle, adding in additional accessories, delivery and pickup can increase your perceived value. While you should remain constantly focused on providing a value that does not need anything extra, adding time saving accessories can attract more of your ideal value appreciative customer base. This is not true for everyone. There are plenty of people that will drive out of their way and stand in endless lines just to save a few bucks, but are these the people that you want as your customers? Do you want the ones that are always complaining about price and trying to haggle you down and will switch to someone else as soon as they hold a sale? I think you will find it is much more enjoyable to have a customer base that appreciates and is willing to pay for value than one that frequents the blue light specials.


4. Put the emphasis on quality and service and the experience.

A good strategy for a small business hinges on your ability to competitively differentiate. Low price and high quality are incompatible competitive advantages. They simply do not go together. Quality costs money; hence the intuitive connection between quality and price. Most small businesses cannot invest in good quality and service and sustain a low price advantage. The economics of it simply do not work. As a small business, rather than trying to compete on price, you should compete on quality and service and compete for a niche of customers who are seeking a level of quality or service that the big guys are unable to provide. Even the goliath discounters like Wal-Mart who do focus on price are ultimately selling on value too. Their value is to bring an enormous selection of goods under one roof providing a one stop shopping experience with a low percentage of stock outs through a well managed supply chain, as well as a friendly experience, through their greeter program. You should focus your sales and marketing strategy on finding your specific niche customers and then accentuating how you are different from your competitors and how worthwhile your value is for them.


5. Use your price point to cultivate your niche.

Usually the people who have gotten sick of poor quality are your ideal customers. They tend to have higher income, and they have started to demand better things. They tend to be loyal and place a higher value on quality and those extra touches that are valuable. They are okay with paying more as long as they can be assured that they will be satisfied with the product or service. Sometime paying more helps them to reinforce the self image they have of themselves as a rich and successful person, or a big company that always has to have the best of everything. If you can manage to delight these people consistently, they will be your customers for life. After a while, they will not even glance at the price tag.


6. Ask what you can do to add more value and listen.

Give your customers a mechanism by which they can provide feedback to you. Before you add a new product or service or a bundle of goods, test the marketplace to make sure the value perception is there. Remember that value is not an objective quantifiable thing; it is whatever people perceive it to be. Customers that like you and plan to continue to do business with you are more than happy to give you their opinion on what they would be willing to pay for. Give them a quick questionnaire the next time they stop in and tell them about some service offerings you are thinking of adding and the proposed price point. Make sure you add in a healthy profit margin. Or better yet start a dialogue with a customer. When they know that you are trying to do more to aid them, they will be happy to tell you exactly how to do it.


Providing the best value to a niche market at a worthy price should be the aim of any business. Your business is guaranteed to flourish when you figure out that you cannot be all things to all people and you decide to narrow your scope and demand a fair price for your value.

By Elizabeth W. Gordon
Image by Andrey Kiselev

Elizabeth W. Gordon, founder and President of The Flourishing Business, LLC, is a visionary leader who has a passion for helping others achieve their entrepreneurial dreams and enjoy more of the best in life. With a vast and diverse background in many business arenas, Elizabeth regularly has the opportunity to share her business acumen with clients, large and small. She currently serves on the Board of Directors of the National Association of Women Business Owners (NAWBO), Atlanta and the Board of Directors of the American Association of University Women (AAUW) Atlanta. She is an Accredited Executive Associate of the Institute for Independent Business (IIB) and a certified Life Coach.