Knowing where to compete
Working in the family business from the time of being a kid, I remember an adage my father would tell me with regard to operating a business. His comment was, “when the bear gets into the water with the alligator, the alligator usually wins”.
The adage can be applied to many aspects of business management. Today we are going to apply it to that of pricing your services. It would be quite a surprise if I were to attend a trade show in this industry and not have someone ask about the issue of some competitor that is pricing their services for less than the person who is asking the question.
Of course, you cannot ignore this competition; they are taking business that otherwise would be coming to your shop. So, let’s take a look at why this is happening and more importantly what to do about it.
Every business wants to have a competitive advantage. Many think this is what people notice most; but is that the case? Actually, customers resort to price when they cannot find any other reasons to spend more money. It is called ‘being a commodity’.
Why spend $4 for a gallon of milk when someone else sells it for $3? After all, milk is milk. If the customer can’t see a difference in what you do, why pay more? That means the issue from your standpoint is that somehow and somewhere (actually, it needs to be in a lot of ways) the customer has to see you are different from the competition that is trying to get your customer based only on price.
From your perspective, your opportunity/responsibility is to explain to those that are thinking about spending their money with you, how and why the products and services you sell are better than anyone else’s. You may need to be able to explain to the customer details of the product, the follow up service, or the timeliness of delivery. You may need to have answers to a lot of questions when your price is higher than some shop across town. But if you expect the customer to pay more, then there has to be a reason – perhaps several reasons.
One other point to consider; there are no shortcuts in the business world. As far as small businesses go, no one has a secret to cutting expenses. Look at all the independent retailers out there. Many of them have to compete against Wal-Mart in some way. Wal-Mart can run their business with all of their operating expenses being somewhere in the low twenty percent range. Many of these independent businesses have payroll that is in the twenty percent range. Add to that the rent, taxes, insurance, advertising and you have a small business that cannot begin to compete on price.
Yet all across America most of these small businesses have found a way to differentiate themselves from Wal-mart or some other mass merchant. It could be a garden center, gun shop, bike shop, clothing store or pet shop; all of these differentiate themselves. They don’t sell as much as the mass merchant, but they make the living they need to make for their employees and themselves.
The gallon of milk is still the same product. But somehow that small business provides it in a manner that draws enough customers. One more point; another adage from Dad.
“If you gain a customer because of your prices, then you are going to lose that customer because of your prices.” It means that if you are selling according to the price, then your customer is surely going to be able to find someone that will sell for even less. It’s like bears and alligators.