Friday, 14 September 2012

4 Tips to Avoiding “Deadly” Price Wars; For Small Businesses

Did you know that competing on price only proves to your customers that you have nothing else to offer?

But, it’s what many small businesses are doing daily. It is the reason your business is experiencing diminishing profits. If you look at the statistics, not many small businesses make it to the second year. Why? They’re simply competing on price.

Blah blah blah… I am not here to give you a lecture on why small businesses fail. Oh God! We can have that chat another day. I am here today, not to bore you, but to give you tips that your business can embrace to evade vicious price wars. 

Many are the times when businesses engage in price wars. No doubt, price wars are necessary, but not an option for the success of your small business. Much has been written on steps to starting a successful small business. I am not here to dispute, only to criticize authors who emphasize on competing on price only. They are simply killing your dream, your entrepreneurial spirit, nothing more. 

Do you know what the causes of price wars are?

I bet you don’t because you, probably,  engaged in one. That’s a topic for another beautiful day.

Sorry mate, I am not here to engage you anymore. I am here to help you become a better entrepreneur, a millionaire you envision yourself in years to come.

The tips I am about to give you are practical and have enabled small businesses survive tough price wars. You may choose to focus on one at first, but as time goes on, I recommend you embrace all of them. Here they are…

1.    Differentiation
In simple terms, differentiation means being unique in what you do, or offer to justify premium prices.

According to Michael Porter, in his book Competitive Advantage, a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price. Differentiation can be based on product itself, the delivery system by which it is sold, the marketing approach, and a broad range of other factors

As small business, should focus on this strategy to evade price wars.
Practical Example
A small business selling birthday cakes may package its products in shiny and colorful wrappers. This will create an image in the customer’s mind that the birthday cakes are superior and tastier. As a result, a customer will be willing to pay a premium price, and probably come back for more.

2.    Branding
Branding is simply creating a name for yourself in the market. A brand name builds customer trust, and confidence. As a result, a customer will be willing to pay a premium price for your product or service. For instance, when you want to purchase a sports shoe, what first comes into your mind? Nike or Adidas, I bet, is the answer you have because you are confident that their shoes are the most durable. Therefore, you will be inclined to buy their products even if it means parting with a few extra dollars.

Likewise, you, a small business owner, should build a name for yourself. If customers trust that your products or services are the best, they will buy from you at a premium price even if your competitors are selling the same product or service at a throw away price. 

Creating a brand is expensive and takes time, but not a reason for not trying it out. Its fruits are long term and justify premium prices.

3.    Improved quality
For many years, we have abused this holy word “quality”. Almost every tagline of any business I come across reads, “Quality in everything we do.”
Even China products have “quality” somewhere within their product package.
Don’t get me wrong, some China products are excellent.

A small business should take time to “prepare” a product, or service before selling it to customers. It won’t cost you much to offer improved quality.

Practical Example
A small business selling hand-knitted sweaters should obtain quality threads. Therefore, the sweaters they sell to their customers will be durable, and justify a premium price. I don’t see a reason why a customer can buy a sweater from another vendor who claims to be selling “quality” at a lower price whereas you are there ready to offer simply the best at a premium price.

4.    Offer Guarantees
Do you that customers like assurance before they buy a product or service?

Why should you be afraid to offer a guarantee if you a 100% sure that your product or service is the best?
Guarantees are one way of assuring your customers that your product or service is the best.
You won’t believe what a certain car dealer told its customers. “If ours cars don’t satisfy you, feel free to return them after two weeks. We’ll gladly accept them back.”
“Gosh! This is madness!”
NO. The car dealer was trying to assure its buyers that its cars are simply the best.

I recommend you take this broad move and offer guarantees to your customers. They will feel free to buy at a premium price. Your competitors offering the same at a reduced price will be left with their eyes and mouth wide open.

Bonus Tip
I know I promised to give you 4 tips. But since you have read this far, I feel obliged to give you more.

5.    Get rid of unprofitable products or services
The first step; find what your customers don’t want. Stocking what your customers don’t want will cost you considerable maintenance costs that should have gone to other uses for instance improving quality.
Focus on what leads to customer traffic and you can go ahead to charge premium prices.
As the saying goes, when everyone zigs, you zag. However, be wise know when it is necessary to zig when everyone zigs.

Please share this with your buddies by clicking the buttons below. Educate them, they deserve to know. Together, let’s make the entrepreneurial world a better place.
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