BUSINESS ADVICE
Price right to stop losing money
Pricing is one of the most critical things that you need to get right in business . Ben Dyer , CEO of app supplier Powered Now , looks at some of the issues to think about .
» BEFORE THE PANDEMIC THERE were some amazing bargains around for new cars including the Dacia Sandero and Renault Twizy . Now it seems obvious to me , but if price was everything , the roads of Britain would be full of these cars . But they ’ re not even in the top ten . In fact , the most successful companies of recent years include Mercedes and BMW , not noted for their cheapness .
The conclusion is obvious – price isn ’ t everything . Of course , that doesn ’ t mean that price doesn ’ t matter , but it should never be your major competitive weapon . And the road to ruin is claiming to beat anyone on price .
Many people just starting out in business try to undercut everyone else . That ’ s because they don ’ t have the confidence that they will win the job in any other way . It becomes a huge problem if everyone else is trying this too . But just because something is the first thought that comes to mind , that doesn ’ t make it right . And even if it ’ s the only way to start , it shouldn ’ t be the way that you carry on .
The first rule : don ’ t compete on price
The title of this article might seem provocative . Many trades business owners might even think it shows stupidity on behalf of the author , but please give me a chance to explain .
When I say “ Price right to stop losing money ” I don ’ t mean that price doesn ’ t matter and that some opportunities won ’ t be lost by higher pricing . What I mean is that you shouldn ’ t allow price to become the main reason your business is chosen by your customers .
So , in the sections below I explain just what the problems are if you make price your primary way of competing , and then try to suggest some alternative strategies .
Pricing must make sense
Supermarkets were able to wipe out many local shops because they had huge economies of scale . They bought in bulk so that they could force supplier ’ s prices down . Historically , it ’ s only the big supermarkets that could pursue this strategy as they had their suppliers in such a vice-like grip that the pips were regularly squeaking . This is known as a cost advantage and they had it in spades over the traditional local boys and girls .
This same problem has now caught up with the “ Big four ” supermarkets who have been struggling . Instead of competing with the down-trodden corner shop , they mostly compete with each other . But now they also have Aldi and Lidl who actually have a cost advantage over them . No wonder the big four have been challenged .
Most trades businesses do not have a cost advantage over one another . Maybe you do because you have some secret way of doing work that no one else knows about , but that would be unusual . A large national contractor that had an exclusive distribution agreement with a manufacturer whose products were cheaper and better than the alternatives might have a price advantage but again , that would be unusual .
Of course , you can beat everyone else ’ s prices with no inherent cost advantage . You just have to pay yourself virtually nothing or do the most slapdash job you can .
A lot of inexperienced ( and too many experienced ) business owners compete on price because they don ’ t have a clear alternative strategy . That ’ s not a good reason for doing it .
You will be poorer As we described earlier , you can easily win on price by paying yourself ( and any staff you have ) a miserable salary . The alternative is to cut corners to do the job in less time which doesn ’ t satisfy the customer , will lead to disputes and means that you will never be recommended . In the worst cases it will lead to unpleasant encounters with trading standards .
Either way as recommendations are the main driver for uncontested business , you will always find yourselves competing with others . It ’ s a vicious circle - you will always be competing with others on price and you will never be able to get off the treadmill .
You won ’ t enjoy dealing with the most picky customers
I wonder how much you enjoy dealing with customers that want to talk about nothing but the cost ? Most businesses , putting this in acceptable language , don ’ t find them the easiest people to do business with . When they are keen on a “ deal ” they also tend to be the most unreasonable and expect extra work for nothing . They also have a tendency to be the most picky about every aspect . These types know the price of everything but the value of nothing . They often pay late or dispute payment too . Why not let your competitors have them ?
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JUL / AUG 2022
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