In my Executive Roundtables I often meet businesses who are doing well. They are undercutting the competition and winning bids left right and centre. Life is good. However, a few years later- a competitor has offered lower pricing or they themselves have grown so much that their cost structure can no longer support the lower price they got into the market with. What’s a business to do?
Why Compete On Price?
Because you can. That’s why you do it. It’s easy, it’s fast and it’s a no-brainer. Look at the success of Uber. Even my 70-year old Mom is considering it because it’s literally half the price of taxis. In fact, my last Uber driver told me that he used to have a kitchen installation business and had a huge market share until a competitor came and undercut his price. He was clueless about how to recover or to fight back so he started driving cabs. Like my poor driver, the real reason why most companies compete on price is because most businesses don’t know how else to differentiate themselves. I mean, unless you invented the ‘Swiffer‘ of your industry, how can you stand out? With your cheaper price-of course.
Why You’re In Trouble
Any advantage that you have over the competition that’s not sustainable means that you’re in big trouble. This advantage could be price but it could also be technology that becomes obsolete or a really hot sales rep who has all the market connections and decides to leave you. If the differentiator is not built into the business strategy itself, it may not be sustainable.
Here’s what people pay me oodles of money to figure out for their businesses: what is a sustainable and meaningful differentiator that will gain market share or larger number of sales other than price? The answer is very simple: it’s your specialized expertise around a very painful and specific pain point. With clients, we figure out the sweet spot of exactly which industry(ies) we serve best around which exact laser focused niche of solution and what pain. Of course we don’t guess these things for our clients. Nor do we let them guess it for themselves (always a big no-no). Instead, we ask the market what the differentiator should be. People are very forthcoming about their pain, believe me.
Putting It All Together
Once you can position your business into a differentiated contender, you no longer have to compete on price. Here’s an example of a client who did just that: a training company who was competing on price because they were a generalist, calling themselves ‘leadership trainers’ were able to double their prices when they niched in helping municipal governments on retaining Millennial employees. See how specific they became after our market insights work together? Focusing works to make you into a specialist and specialists can always charge more than generalists.
So the next time you’re bemoaning your low margins and gazing wistfully at your bottom line, think twice about why you have to compete on price and get your business out of that situation fast!