BUSINESS
When it’s a race to the bottom, climb to the top. With increased competition in most markets, there’s a danger businesses will decrease prices to compete. But this is the worst thing they can do. Darren Isaac from TFA explains why.
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urrent market pressures on businesses are coming from all angles: Rising supply chain costs, increased labour costs due to short supply and rocketing energy bills. This is driving competition in most markets so, when things heat up, you need to think about how you are going to adapt. Believe it or not, cutting your prices to retain or win business is not the answer, you should be increasing them, and here’s why… Leading on price will put your business into a corner I read an article this week about someone in my industry who had, in several years, successfully grown a service business from zero to £3m by providing the cheapest price in the market, outsourcing the work to India and minimising administration. His customers were small businesses who thought the service was generally expensive so, for them, £80 every month was easy to part with. As the market had evolved, clients learned and understood more about the service and were asking for more because what they were getting was what they were paying for. They questioned quality, realised they were wasting £80 per month and it was better to spend more and get a decent return. As a result, his business started to unravel and then spiralled downward. The crucial point here is that, when you lead on the lowest prices, it is extremely difficult to later increase them successfully for the same service. You are peddling cheapness and piling customers high. Customers will generally not accept a price increase and they will look around. It’s time to reassess your model We all know that business is a balancing act. You need to charge enough to cover your costs and make a healthy profit, simple as that. So when market pressures ratchet up, it’s obvious that a go-to is price discounting and special promotions. While this can be very powerful, it has to be utilised sparingly and in the right context. You should never ever, unless as an absolute last resort, cut your prices across the board. When was the last time you heard of anything in this world getting cheaper? Virtually nothing does – it’s called inflation – so the same needs to apply to what you do. Where business owners struggle is that
they cannot see how they can simply increase their prices and they worry about customers going elsewhere. This shouldn’t stop you. What you need to do is the following: 1. Consider which customers are currently making you money and which are not. Decide whether you will be better off losing the ones taking up all your time for little reward so you can concentrate on the ones who spend more with you. 2. Reimagine how you communicate your business proposition and how you package it. Look at how you can make your business look ‘premium’ and your service become a beacon of excellence – how will you start to look and be the very best? 3. Remember there are plenty of customers who prefer to pay more for things on the expectation they will get a better product and/or service. 4. Realise that if you were to increase your pricing by, say, 10% or even 20%, the extra revenue can offset any customers you lose meaning you will be doing less work for the same money. My point here is that you need to evolve and improve your business not slash your prices. For you to charge customers more, you need to look like one of the best and then you need to be one of the best. The experience of your products or services must feel “reassuringly expensive” (to quote Stella Artois). Communicate the value, always. What you need to be looking at to ‘price upwards’ Another thing many business owners are afraid of in more challenging times is spending money. One of the worst things a business can do in a more competitive market is cut spend in the places where investment is critical. To give you two big examples: 1) Cutting spend on marketing and advertising; 2) Trying to buy or deliver what you do more cheaply (cutting costs that erode the customer experience). Both will hinder what you are doing and send your business into eventual decline. They are both kneejerk decisions that are congruent with a race to the bottom and you will suddenly find yourself on that trajectory without even realising.
The main things you need to look at to support a premium positioning strategy are: • Update and refresh your brand image to look premium. – Your logo – Your website – Anything else potential customers may see • Rethink how you talk about and present what you do to customers, down to the very words you use to describe it. Be more ‘Rolls Royce excellence’ and less ‘Toyota hatchback affordable’. • Look at new things you can add to your service that have perceived value to your customers. Start with the quick and simple changes that make a difference, that your competitors don’t do then look at the bigger things later. For example, introduce more customer service follow-ups, ask your customers where the pain points are, do things to address them, show you listen and you care. • Look at who the best in your market is, consider why and then benchmark your business against theirs. What can you do that they are? Like most things in life, in order to become the best you have to learn from and imitate the best. These things do not all happen overnight but lots of small things can. Start yourself on the road to being better and maybe, eventually, being the best. Remember that perception comes first and that this is everything but you must then deliver on the expectation your create. Charging more is easy... feeling worth it is the hard part. To quote Aldo Gucci, “Quality is remembered long after price is forgotten.” If you need help giving your business image and overhaul then get in touch with me at TFA. We help businesses just like yours to completely transform and, more importantly, to grow. Darren.isaac@t-f-a.co.uk 01908 263650 www.t-f-a.co.uk
Darren Isaac is the owner of TFA, a multi-award-winning brand, marketing and creative agency. 56 The Triangle, The Coachworks, Wolverton Park Rd MK12 5FJ www.t-f-a.co.uk | 01908 263650 22
March 2022 | NN Pulse Magazine | 22,000 Copies delivered every month door to door across Northamptonshire
