Why You Shouldn’t Compete on Price Alone
Many small businesses believe that driving their prices lower than the competition will attract more volume. That may be the case; but you sacrifice something very important: profit margins, which means an inability to adapt to changes in cost. The drawbacks only start there.
Bargain hunters are loyal to price. They won’t stay loyal for long if you start adding a few dollars or cents. You may also give your customers the impression that you will always be selling at a lower price. So, build loyalty to YOU such that they won’t be looking at your prices inasmuch as your ability to satisfy and deliver.
Big companies who can afford to buy more things wholesale will likely steal the limelight from you. Now, these companies know that if they attract more customers into their stores on account of lower prices for bestsellers, their customers are bound to buy something with a higher markup. They can afford to sell at a loss. You, however, are not likely to, especially if gas prices suddenly go up another few cents.
Consumers are actually willing to buy good quality products for a fair price. I was looking for a good second-hand mobile phone in an online marketplace the other day. I found that I preferred sellers who, I felt, knew that they had a good, durable product and were thus willing to sell it at higher price. Anything lower and I suspected that there was something awfully wrong with their phones.
Rely on ‘innovative practices’ to increase your profits. That means an ability to spot fluctuations, adapt, and find new ways to be more efficient. They may mean automation, outsourcing; it can even mean that you communicate and sell through the internet.
In the end, if you do decide to compete on price alone, you’ll be isolating a breed of consumer that switches sides at every crest and swell. Your business needs the sort who will come back and bring a loyal network right to your doorstop; in turn, you will give him or her quality and satisfaction. All of that, for a price that is reasonable and not necessarily the lowest.
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- The Zen of Price Negotiation
- Show Me The Money: In business, everything has a price
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- Large Scale sites = good value for buyers
- Blog networks
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If your business is built around price competition, that means your product seriously lacks differentiation. If your product is only good because its cheap, you may want to rethink your model.