3 Reasons NOT to Compete on Price

The price a business owner establishes for the sale of their products and services is arguably one of the most important business decisions they make.

And yet, pricing is one of the most feared elements in managing a business.

One of the many conversations I have with business owners is related to pricing, and those discussions often start with me saying, “Your prices are too low.”  They look at me in shock and respond with all the reasons why they cannot raise their prices:

  • I’ve lost jobs because I was too expensive.
  • I’m more expensive than some of my competitors.
  • I’m barely making enough profit as it is, and I can’t afford to lose customers by raising prices.
  • You have got to be joking— put my prices up in this depressed market?

Responses like that generally demonstrate that those business owners don’t understand the impact pricing has on a customer’s perception of their business and its branding in the market.


Here are three reasons why you must never compete on price:

1.  Perception – you’ll be seen as a ‘low-end’ player

If your prices are too low, your market will label you a low-end player and you’ll attract bargain hunters who’ll invariably try to get you to discount your products even further.

2.  No or little customer loyalty

Lower prices also make it unlikely your business will build long-term relationships with such customers, who by their very nature will shop around to get the best prices on a product or service, not staying loyal to any one business.

3.  Get better quality customers with higher prices

Higher pricing raises customers’ expectations.  If you constantly deliver on those expectations, your business will usually enjoy customer loyalty, and you’ll attract better quality customers who are willing to pay more for quality customer service.


The BIG question is….. Are you branded?

I hope so.  What does your business, your brand, stand for?

What is the promise you make to your customers?

Branding is about building a relationship with your customers, while living up to your promise.


Ordinary to Extraordinary

A brand can turn something that is pedestrian, homogenous or ordinary into something that is unique and that stands out from the crowd.  Something that is extraordinary.

A strong brand builds respect, loyalty and retention, and allows you to set your pricing strategy accordingly.


What do the experts say?

Dr Michael LeBoeuf, international business consultant, focuses a lot of his work on how to win customers and keep them.  He has created a matrix based on extensive research on why customers leave a business.

Why customers leave a business

  • Perceived Indifference      – 68%
  • Unresolved Conflict           – 14%
  • Get a Better Deal/Pricing –  9%
  • Influenced Away                –  5%
  • Move Away                         –  3%
  • Die/Insolvent                    –  1%

Based on that research, of those customers who leave a business, only 9 percent leave due to pricing, whereas 82 percent of customers leave because they are not treated as special or there is an unresolved conflict.  In essence, they leave due to a lack of customer service.


The key to business success….

Therefore, the key to success is concentrating on the customer value proposition you deliver to your customers.

It’s about going beyond the call of duty to provide value and service.  It’s about creating customer cheerleaders, people who will be loyal to your business for a long time and at the same time will refer their family and friends.


Pricing is strategic

Pricing is not an arbitrary decision; all businesses should have a pricing strategy.

When determining your pricing strategy, the key is to know your proposition for your customers and price according to that, rather than pitching your business against your competition and attempting to undercut them to win more customers.


Never compete on price 

It’s worth repeating.  NEVER COMPETE ON PRICE.  That’s a business decision that will see you, your business, and your staff and suppliers lose in the end.  Why?  Because if you are prepared to discount your price once, you will do it again and again!

At the beginning, in order to maintain your profits, you can create increased operational efficiency to compensate for reducing your prices.

If you continue to reduce your prices, then eventually you will need to reduce your staff numbers or their pay (or both), and no doubt you’ll also be asking your suppliers to reduce their prices to you.

Do that for long enough, then your staff can’t afford to work for you and your suppliers won’t be able to afford to supply you, so you won’t have a business.  It is a lose/lose business strategy.


Become branded

A brand is a differentiator.

A brand is a promise.

A brand is an experience.

A brand can move a business or a person from the ocean of obscurity and ordinariness to the river of relevance and riches.  A brand can help you achieve the extraordinary – as you define it!

QUESTION:  What are the biggest worries or fears you have when thinking about pricing and/or branding?  Leave a comment below.  C’mon, let’s get the conversation going.

Previous articleUK Blog Awards 2016
Next article#TechTuesday: How To Create A Twitter List
Adèle McLay is a high performance coach and business growth coach. She helps people to achieve the success they desire in their businesses, work and lives. Adèle is also an entrepreneur, inspiring professional speaker and teacher, as well as an author.