Business Tip of the Week: Marketing/Pricing
by Gareth Cotten on 01/03/10 at 9:30 am
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Know your value offering, and stick to your guns on pricing. When times get tough for a business, and customer numbers start dwindling, one of the first things that many business owners do is slash their prices.
While this may get more feet through the door in the short-term, it’s not a healthy situation for the business in the long run. If your competitive advantage is having the lowest prices, all it will take for your customers to go to someone else is for one of your competitors to undercut you. To get them back, you lower your prices even more, and this cycle continues until you’re actually losing money. Did you get into business to lose money?
Instead of chasing the customers whose sole criterion is price, know what it is about your offering that makes you different to your competitors, and make that value clear to your customers. Ultimately, it’s not about price, but value. If people buying from you feel that they’re getting true value for their money, they’ll be happy to spend with you.
A basic example is that of a plumber or electrician. There are plenty of them around, and many of them compete solely on price. The operator who charges a bit more, but makes the value of his service clear, will be the one whose business ultimately succeeds. It could be a free one-year guarantee on the plumber’s workmanship, or a promise by the electrician to clean up after himself. Whatever it is, it’s what makes them stand out from the crowd, and what justifies their pricing structure.
Also remember that it often boils down to an issue of perception. You might be the absolute best at what you do, but if you charge too little for it, people may think that you do substandard work, and avoid using you. If you have a perfect Arabian stallion, and stick a price tag of $100 on it, people are going think there’s a problem with it…
Gareth Cotten is one of the growing breed of SA entrepreneurs with that ‘world-domination’ look in his eyes. Gareth runs the coaching and consulting practice 'Good Advice'. Gareth is also the 'course convener' for the University of Cape Town (Law@Work) Start and Manage a Small Business course and the University of Cape Town Basics of Financial Management course. View more articles by Gareth Cotten.
