When Does Price Competition Become a Problem?

Are you a small/medium-size business selling mainly to local customers? If you are the chances are that there are a few other local businesses just like yours selling the same or similar products and/or services.

Now when there’s a lot of demand in the marketplace and  you can sell your products and/or services quite easily you  don’t have to worry too much about your competitors because there’s plenty of work for all of you.

But when the market’s not very busy,  as at the moment, it’s likely that your customers will look a lot more closely at prices and may choose to buy from a business that’s either the cheapest or very nearly the cheapest.

You probably feel that cost of your products and/or services isn’t the most important factor to be taken into account, and so how do you avoid competing on price?

Seven Tips to Avoid Competing on Price

Study each of the following tips, and if price competition is causing you some problems try them out in your business.

–          1. Check Out Your Competitors

This tip applies to any business, in good times as well as bad.

Carry out a survey of your competitors or get someone else to do it for you.   Get hold of as much information as you can about the products they sell, the services they provide and the prices they charge.

Draw up a simple comparison table with products and services down one side and major competitors down the other.  Only include the competitors you meet regularly and make sure you are comparing like for like.

You’ll find a range of prices. If you’re near the bottom, that might be good news, but only if you want to market yourself as the cheapest supplier.  If this is the case it might be time to review and increase your prices.  If you’re near or at the top you need to be able to handle the price objections that may come your way.

–          2. Compare Product/Service Features

Whilst you are carrying out your research make a list of the main features of the products and/or services being offered by your competitors.  It may take a little while to gather this information, but it’s well worth-while as I hope we can show you.

If you find that the products and services you are providing are much better than those of your competitors but that you are not competitive on price you need to be able to sell the benefits of your extra product features to your prospective customers.  They must be able to see that although they may be paying slightly more, they are getting more for their money.

If however, the products and services you’re offering are not quite as good as those of your competitors, you either need to take steps to improve your products/services, or look for alternative market areas where your products will compete better. This might involve targeting types of customer you haven’t sold to before or perhaps marketing your products in different locations.

–          3. Find New Markets

This links in directly with the previous tip.

If local price competition is very stiff and you aren’t able to do anything about improving or extending you product you’re only alternative is to look for new markets to sell in.  We have mentioned looking for different types of customer or different locations , but you should also consider different applications of your products and services.

For example, If you are a house decorator perhaps you should look for commercial decorating work.  If you are a graphic designer perhaps you could move from designing brochures to designing websites.

Brainstorm your options  (mind-maps can be very helpful for this).

–          4. Develop Unique Products

If you are in a position to develop unique products or put together unique packages of services you’ll be in a very strong position in your marketplace.

You will in effect have no competition. Your customers won’t measure you against your competitors and will probably be quite prepared to pay more providing the products and/or services you provide meet a genuine need.

–          5. Bundle/Repackage Your  Products and Services

Unless you are selling a commodity product most customers will expect to get support and after-sales service from you.  This could include everything from additional calls to rectify problems and provide training down to dealing with minor complaints.

In situations like this you are really selling more than a product or service. Very  often, what you do after the sale has been made helps you establish a reputation and create loyal customers who won’t buy on price alone in the future.

You can enhance this effect by bundling additional services with your product.  For example, these could include a special instruction manual, a video tutorial or a follow up three months after the sale.  When you start to think about this you’ll probably find many, many different ways of enhancing your product and creating a customer perception of greater value.

–           6. Build your Reputation

By taking action on tips like the one above you will enhance your reputation. You’ll become known as the best in your area, and when this happens, your customers will be much less likely to make price comparisons.  Of course, there will always be customers who buy on price whatever  you do.  But remember that you can’t win them all.

–          7.  Create Scarcity

When you make a proposal to your customer and provide him with prices, offer a special deal or a discount which is time limited. It’s important not to make the offer open-ended. These offers frequently work like magic. Your customers won’t want to miss out on a bargain, even though in the end your bargain may be the same as your competitor’s normal price.

Now Take Action to avoid Competing on Price

You’ll find that some of these tips on how to avoid competing on price are more relevant to your business than others.

If you are re-selling a physical product you may not be able to change it, but you can package it with services to differentiate what you are selling from what your competitors are selling. If you are mainly selling a service you have a lot more flexibility on how you adapt, change and package that service.

Providing you can help your customers understand the additional benefits you are providing you are unlikely to lose business on price alone.

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