When the business is slow and you need to bring in new business, you may want to use price as an incentive. However, cutting your prices is could be a mistake. Competing on price for most small businesses can be the wrong way to go.
You shouldn’t make price the main reason that you expect your company to be chosen over competitors. Never commit to beat any price from any other supplier as this can get tricky.
Where price-cutting makes sense
If there is a cost advantage over your competitors then competing on price would be a good route. Big supermarkets are known for doing this as they have their suppliers in such a tight grip that they can get away with it.
The majority of smaller businesses don’t have a fundamental cost advantage over one another, so competing on price will just lower the margins. This becomes an issue for the big supermarkets. Instead of competing with the corner shop, they now principally compete with each other and continue to emphasise price. They also have to compete with Aldi and Lidl, and these companies have a cost advantage.
Dealing with customers that want to talk about nothing but the price is difficult. Most businesses don’t find them the easiest people to do business with. These people are known to be keen on a “deal”. They also tend to be the most unreasonable; they are often the pickiest about every aspect of the work being done. These customer types know the price of everything, but the value of nothing.
What are the alternatives?
There are a lot of alternatives to competing on price. The first is to make quality your selling point. If you are not the cheapest quote, you need to explain to people that if they get other quotes, they won’t be for the same job in terms of, for example, the quality of materials and workmanship. Best price isn’t the same as best value.
Provide a level of customer service that competitors can’t match. For example a call out time within a certain amount of time or a free quote for new customers etc. This builds trust and often leads to follow-on work where price is not the prime consideration.
Each company needs to find their own unique approach or specialisation that helps them avoid competing on price.