We know that everyone is looking for value in purchases, however if given the choice of getting better quality in goods or services, or getting it cheaper, which would you choose? Most customers would prefer better quality once they've decided to purchase, even if it's a bit more expensive, because cheaper usually means lesser quality. As a business owner, is it a better strategy to deliver a product of higher quality or service, or at a lower cost? There's a simple business rule here - if you compete to be the lowest cost, you might win the race to the bottom, but you won't be in business once you get there...
There's a simple economics rule at work here too. There's a fixed demand for a product or service at a selected price. When the price is raised, demand declines. When the price goes down, customers see the discounted value, and demand increases. However, when the product is viewed as special, different, unique or rare, customers will still buy it if they perceive that it's better than the alternatives. Getting the optimum price point is key to running a successful business, by reflecting your competitive advantage. Consumers want better before cheaper. Really, they do.
How it works
Bobby Sue needed new shoes for work. She was on a budget, however she had to have shoes that were comfortable for prolonged standing. She also wanted to find shoes that would coordinate with most of her outfits. She considered three different stores. One store in the mall had lots of different options, however even on sale, the best value she could find was $79. Then she went to an off-market option, and found a pair that could work for $39, however they weren't made of as durable material, and she was concerned about how long they would be comfortable. Lastly, she went to an outlet store, and found a well-made pair for $69 that were comfortable and stylish enough to wear with slacks or skirts. She bought them. All of the three stores had acceptable options, however one had the shoe quality that met the customer's requirements. She was willing to pay almost twice the price of the off-market item for a pair that met her requirements - did you catch that?
This isn't an isolated example. This same situation plays out every day. Now, there are individuals who will pay the least amount possible, and will accept the quality of what they get for items that are easily substituted (less important). My son is an example of this type of consumer, at least for some things. For items that really matter to him though, like a new bass guitar, he's willing to pay for the value. If the store brand is half the price of a name brand for a routine item, most of us would go with the less expensive item. However, in items that are scarce, premium quality, or unique in value, consumers are willing to open their wallets. As business owners, we must see this, and leverage it for sustainability.
A Competitive Analysis
How do you know if customers will find your products or services at a better value than your competitors? You perform a competitive analysis of your offerings to other vendor's items, looking for pricing, value points, and areas where you can differentiate your offerings. Compare items used for the same purpose, even if not exactly the same; items need to be relatively substitutable for one another. We use a specific tool for this, that helps ensure that pricing is optimized and captures what is specifically different about your products from competitors. This enables you to market and promote your unique competitive advantage, yielding more profitability. If this sounds like work, it is, however this disciplined practice is essential to growing a profitable business. Unless you're Amazon, and have a computer that does this for you, there is no shortcut...Besides, the learning through this process might well identify some new product features, value or advantages that you can innovate!
If you've never done a competitive analysis, you can spend hours or days figuring this out, or you can connect with us, and we'll help you through it the first time (or more, if needed), or we can gather some information and do it for you. In our experience, the first time you really should be guided on how to use the tool, to complete the analysis accurately. Once you've got it, you should repeat this when you are planning for new products or services, or when your competitors make significant changes in similar products to yours. Getting started is easy - select the button below, and we'll help you as needed.
Consider how your customers perceive your products or services. Are you positioned at the top of the offerings in those areas, somewhere in the middle, or at the bottom?If you'd like to see more rewards from your business sales, remember to add more customer value, differentiate your services from the masses, and always focus on excellent quality and service to support effective growth. If you've tried all of these tactics and are still struggling, we can help. Click the link below to schedule a confidential conversation...
Dawn Garcia is Principal and Founder of Pursuit of Excellence LLC, an independent business management consulting firm specializing in service-based businesses; delivering leadership, strategy and execution expertise. Experience the Excellence Driven® System for your business, and achieve the results you need! Every business needs help at some point; great business leaders actually get help when needed, realizing greater returns. When you need help, consult the experts. Our success is your success!