You may have heard the term “race to the bottom”. Like many of you, I bid on jobs in places like Thumbtack and I am typically competing against companies that have lower prices than I do. Because I want to win all the jobs, my instinct is always to lower my prices or offer a steep discount…
But that is rarely ever the best solution for your company. Lowering your prices is one of the quickest ways to lose control of your business.
Here are 4 reasons why lowering your prices is not the answer
1. People that are looking for the lowest price are not your ideal customer.
9 times out of 10, people that are looking for a bargain are not loyal. They will drop you as soon as a better deal is presented to them. They also expect the same deal for recurring services (or even less) and tend not to be the easiest to work for (in our experience). Their number one prerogative is to pay the least amount for the work that you do.
2. You have to pay your teams a living wage
Just because you are giving your customer a discount doesn’t mean your your teams will take kindly to your generosity. You either pay them a percentage and make them unhappy about their reduction in wages or you pay them a percentage or hourly rate and swallow the loss. Either way, both will negatively affect the health of your business
3. There are people out there that will pay what you are worth
Why do more work for less money when there are people out there that value quality over the best deal. For example, when I look at someone to hire, an abnormally low price signifies a lack of experience, savvy and professionalism. Of course, you must communicate value in your bid, your website, or your appearance… but typically the right branding, a fair price and a job well done will be worth more to your ideal customer than a deal.
4. People won’t pay full price if you are always offering a discount
While it may seem ideal to send out discounts to convert customers, if you do this regularly, your customers will be trained to never pay full price. They will wait to book your services when you are offering a discount even if they didn’t originally come to you with pricing being the main factor when they chose you.
So how do you compete?
Here are 4 ways to combat lower priced competitors
1. Set yourself apart by marketing yourself as a premium product
If you have quality branding, superb service and you let people know upfront that they will need to pay for that quality, your ideal customer will seek you out.
2. Stress why you are different
Don’t just set your prices and hope that someone will book. Tell people why they should pay more for what you are offering.
3. Pay your teams a higher wage
If you are paying a low wage you won’t get quality workers that will stay with you long-term. Without quality workers, you can’t provide great service and you will not be able to justify your higher prices. Your workers are your lifeblood and finding good ones will keep you in business.
4. Don’t obsess over your competition’s prices
When you are first starting, it is advisable to do a competitive analysis however, obsessing over your competitors prices and lowering or running sales when they do won’t serve your business well. Put all your focus into beating them on quality instead of pricing.
So next time you are stressing over prices, think about these tips and stay strong while focusing on value.