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.
