You advertise that you have the lowest price in town…is that the best you have to offer? If price is the only thing that distinguishes your business from the competition, you may have a problem. If a competitor beats your price tomorrow, you have lost your uniqueness. What do you do? If you cut your price to beat the competition and reclaim being the “low price” provider, how does that impact your profits? Can you afford to lower your price? How much more must you sell to make up for what you gave up in price? Before you engage in this war, make sure you understand the mechanics of costing. Calculate your fixed and variable costs and determine your unit cost. Having more customers come through your door doesn’t mean you are making money. Getting caught in a price-cutting war can be devastating to a business and means that your competition is running your business, not you.
For some businesses, having the lowest price may be enough, but in many cases, it is not and will not sustain or grow your business over the long haul. A customer base that is built on price is usually not a loyal base – they’ll move to your competition with the next sale. If you can separate yourself from the pack and build a customer base of loyal, repeat customers, it can be more profitable and less costly for your business.
How do you separate yourself from the pack? Start by identifying how your product or service is different from the competition. Also, keep in mind that it is not just about being unique. The uniqueness must provide value for the customer, a difference they appreciate that motivates them to conduct business with you. It might be as simple as your hours of operation. If your competitors close at 5 p.m. but you stay open until 6 p.m., potential customers who must conduct business after 5 p.m. may value your extended hours and be motivated to choose you. The uniqueness may be the reputation of your staff. Having a knowledgeable staff to assist customers may make the difference. If I am planning a home improvement project and know that Lowe’s employees have expertise in the departments in which they work, I may choose to shop at Lowe’s. Maybe yours is a service industry where, at little cost, you can provide convenience and save customers time. If you solve a problem for customers (not enough hours in their day), they are often willing to pay a premium for a product or service. One of my former clients had a small laundry and dry cleaning establishment that provided pick-up and delivery service. Although her prices weren’t the lowest, she was able to separate her business from the competition because she provided pick-up and delivery service. This service saved customers time, offered a convenience they valued, and motivated them to conduct business with this mom and pop operation.
If price is what makes your product or service unique, back it up with something else that separates you from the pack…don’t put all your eggs in one basket. Whether it’s your staff, hours of operation, product warranty, or customer service, back-up your low price strategy by identifying and marketing additional benefits or features that consumers value and will motivate them to patronize your business.
(Source: Susan Caldwell)