Absolutely, but not as you might expect…
My current business coach said this in a training video I watched from her last week-
“I absolutely compete on price. I always try to be the most expensive.” Leela Cosgrove
Hang on a minute… what? Yep, you read it right, and I have to say I agree with her. In fact, I ran with this exact strategy when I owned and ran Bit Bank Australia. Let me explain why.
I had a general rule with Bit Bank that I never discounted. My prices were always RRP, and where there was not an Australian RRP set, I went with the upper range rather than discounting. I rarely offered discounts (except to my VIP mailing list or at Equitana), and if I got this question on the phone from a potential customer: “It that your best price?” my answer was always-
“Yes it is.”
Then, I let the customer decide. I never tried to talk them into it, or entered into any discussion around my pricing. I charged what I charged because the service I offered was superior to any other business out there that was also selling bits. Hands down.
So tell me, why would I under value myself and my business by charging less that what it was worth?
If you are in retail you know there is only so much margin you can eek out of it anyway, once you take out your cost of sales and other expenses. So why would you decide to build a business on offering discounts and cut pricing?
If you know that the VALUE that you are offering is superior to your competitors- your service, your processes, your product options, your follow up service, they way you make your customer’s feel- then why are you competing on price?
The second factor here, is that when people are paying a little more for a product or a service than they can get elsewhere, they treat it with a bit more respect. As a dog trainer, perhaps, if you are charging $90 a lesson, and your next competitor is charging $20, I guarantee you that the people who turn up for those $90 lessons are going to be keen to get their extra $70 worth! That means, they turn up on time. They do their work at home. They pay more attention in class. They are committed to what they have signed up to do. They are more loyal.
If you are charging a lower fee, you might think you get more people turning up, and make more money that way. Generally, this doesn’t actually work. You are more likely to getting people drop out at the last minute if the fee is low, cancelling, not following through on work you give them to do afterwards, being distracted during your session with them. And then, when you do finally raise your prices, those people will disappear to find the next person who is only charging $20.
As an example, I pay what some would consider a top rate for my lessons with my riding coach. My horse’s therapist charges at the upper scale. My Dental vet the same. (my trimmer doesn’t- but I’m trying to convince her to raise her prices!) My business coach certainly charges at the upper end of the scale.
But you know what? I get amazing value from all these service providers. And I am incredible loyal to them all. In some respects, I don’t care what I pay them because I know the value I get back from them is 10 fold.
As a small business, if your competitive strategy to grow your business is going to be based around pricing- don’t compete at the lower end of the scale. That’s just a really slow way to go broke…. Instead, build yourself into a premium brand, offering premium value and start charging accordingly.