3 Reasons Competing on Price Alone is Risky for Your Small Business
Episode 69 | Live with the Pricing Lady (Thursdays 15.00 CET)
Competing on price alone is for most business not the way to go. In fact is very risky.
There's a huge temptation in small businesses to try to compete on price. Especially when it's a new business you'll find it's often the "go to" strategy. The idea is if we hook them at a low price now and get enough volume we can just increase our prices later on. While it works for a few, in general it's not the best way to approach pricing in a small business.
Often economy pricing becomes a habit that continues in the business as they struggle and scrape to turn a profit. Trying to be a low price leader in a market makes it difficult to grow.
Unfortunately, most businesses spend more time, energy and creativity trying to lower their prices then they doing putting efforts into maintaining or raising prices. Don't believe me. Make two lists one all the ways you can think of to lower the price and a second all the ways you can think of to increase your prices. Then look at which list is longer.
Every 1% counts in pricing (check out the Profit Impact Calculator in my Pricing Tool Kit), especially in low price, high volume businesses there's simply no room for error.
Competing on price alone, is risky especially for small businesses. But why?
That's the question I'm answering in this episode of Live withe Pricing Lady.
- 0:39 Where we learn price competition?
- 1:16 Reason #1
- 2:41 Reason #2
- 4:13 Your vulnerability
- 5:47 Reason #3
- 8:37 Can I have a low price strategy?
Great quotes from this episode.
"When it comes to small businesses, fighting or competing on price alone is really, really a challenge."
... low prices do not guarantee large volumes."
"As soon as people see what you offer as a commodity, then it opens up the flood gates for what they perceive as alternative solutions and then anything that they perceive as an alternative solution that has a lower price is going to beat you out."
"...that cost structure that you have internal to your business will limit how low you can actually go with your prices and still make any money at all."
"...maybe in the short-term you can sustain these low prices, but in the long term, if you can't maintain that cost structure, it's almost impossible for you."
"You are going to have to figure out where that extra volume is going to come from. New markets, new target groups, different types of offers. Where is that going to come from?
There's a lot to picking the right pricing strategy for your business. Competing on price for a small business is rarely the way to start. Here's the full transcript as well.