Given a choice between similar products or services, consumers will decide based on just two factors-PRICE and VALUE.
So what’s going to make customers buy from you rather than your competitors? In other words, what sets you apart from your competition?
If you think it’s your price, think again. The last thing you want is customers who buy based on price. Unless you already have ‘deep pockets,’ competing in this way is the most predictable route to a business that is unstable and vulnerable to minor changes in market conditions.
You’ve seen this before:
- “We beat Costco”
- “We honor all competitors’ coupons”
- “We’ll match your lowest price”
Lowering prices is often the first place business owners frequently go when they begin to worry about revenue and attracting new customers.
While the low-price strategy may be effective in the short-term, it’s a potentially disastrous long-term strategy that leaves you vulnerable to getting under-priced by the eager business down the street. Worse yet, price-sensitive customers are not loyal buyers. The next time it comes to buy, they’ll jump to whomever has the lowest price that day.
Competing based on value, rather than price, is the only predictable, sustainable way to increase revenue. What you really want are “more” and “better” customers who are loyal. You want customers who appreciate and value you and what you have to offer.
Good customers are value-sensitive. They understand that cheaper isn’t necessarily better and are willing and used to paying for excellent quality and outstanding service. They also tend to be fiercely loyal. For a given price, the higher the perceived value to the customer, the more likely he or she will buy-now, more, again, and more often.
What to do?
If you are selling a product, offer a service to enhance the real and perceived value of the product. For example, a local camera store offers a package as part of your camera purchase that includes various classes that teach you how to get the most out of your camera. These classes are offered at no additional cost, they give you valuable, hands-on training, and they enhance the loyalty to the store. They’re also a promotional opportunity for the store.
If you are selling a service, offer a product to enhance the real and perceived value of the service. For example, our financial engineer (she’s really a non-traditional financial planner) organizes a yearly “summit” where she brings together experts from various areas of wealth building. She sends a CD audio recording of the event to all of her clients at no additional charge. The perceived value? High, because she provides education and training that complements her work while demonstrating her commitment to her clients’ success.
Sounds good, but here’s the catch:
You can’t compete based on value if you aren’t clear and confident about the value you provide. You must not undervalue, underestimate, or under appreciate what you have to offer the marketplace.
- Commit to a business growth strategy that is based on value-based pricing rather than lowest pricing.
- Get crystal-clear about what you offer that is valuable to the marketplace.
- Continue to expand the value you provide with your products and services. Add on complementary services and products to your existing lines.
- Measure your key performance indicators from value-based pricing and compare them to your previous results.
Unless you can get your competitors to sign a no-compete clause, piling on the value-rather than lowering your prices-is the most sustainable way to build your business. It makes for healthier business operations and contributes to a healthier economy in the process.