Deciding if you want to be the cheapest
Recently I overheard a conversation of two people at a restaurant. They mentioned a particular store they shopped in. They were complimentary about the location, the product selection, and even mentioned how they enjoyed using the products they purchased in the store.
The discussion turned to their desire to have a business that would be like the store they enjoy. However, at this point one of these prospective partners said, "And I know we could sell it for less".
This is probably the part of small business I just do not understand. Someone finds a part of the industry they enjoy and decide they want to invest money in. Why would they see a business they like and then decide they could, or should, sell the same thing for less money?
Even if they were going to put their shop across the street from the competition, why would they want to have the cheapest price? There is no logic in deciding to compete with another business based on price. This writer's father drove this point home saying, "Any fool can sell something for less".
Someone attending a presentation I gave clearly understands the concept of business saying, "If you gain a customer's business because of your prices, then you will also lose that customer because of your prices".
While some may think the key to getting a customer's business is having better prices, experience has shown the most profitable businesses have been those who have found a way to build a better mousetrap. In other words, they have appealed to customers whose main concern is not price, or they have appealed to a customer's feel for value.
When a customer is deciding to make a purchase, they calculate whether or not there is a value present. The customer begins by determining the quality of the product or service. They consider the service the business is providing, and add to this the information they are receiving. The fourth factor in the equation is the price of the product. These four ingredients: quality, service, information, and price are added together to determine if there is sufficient value to justify the expenditure.
The secret to the successful business is to begin by increasing the information and service. They may be able to increase the quality of the product by showing a different brand than the customer saw at another merchant. With these ingredients in place, they are unable to price shop the merchant against the chain store or big box store.
Your business has many advantages that you can, and should, take advantage of. Unfortunately, we don't realize we have them. An example is the carpet store which is located in an outparcel from one of the big box home improvement centers in our community. With large signs they proclaim, "Cheaper prices than our next door neighbor". Instead of this scheme, this retailer could promote themselves as having a larger inventory, or better selection. Surely, in addition to having a location that is just as convenient, this local business does not have long lines to check out at the register. You definitely do not have to walk across the large parking lot to get to their front door.
And the person selling carpet in the carpet store today is not the person who was selling paint or lumber last week. Hopefully, the staff of the carpet store is not only better educated about the products and services, but has the opportunity to know customers on a first name basis.
We heard one retailer complain about his inability to compete with chain stores in his area on several product lines. A second retailer suggested the first retailer should add other lines in which he could establish a higher quality with the customer.
The response of the first retailer was to say that customers were not asking for these other lines. What the first retailer failed to see was, just like the carpet dealer, he had many advantages. Unfortunately, he failed to utilize them. The ideal situation would be to have the product that is at the chain store, and at the same price. But when the retailer is talking with the customer he could show them the differences in quality in an effort to sell the more profitable item.
Take the time to sit down and list the twenty advantages your business has over the chain store or big box store. What if you say, "I can't think of twenty advantages"? Then if you don't know your advantages, your customer does not know them either.
When a retailer is unable to find his advantages, then he is relegated to competing on price alone. And that is a dangerous and very unprofitable situation. Cheaper is not better.