There was a lady who lived in a small town. She had operated the town’s one and only hairdressing salon for many, many years. One day she was told that a new hairdresser was coming to town, so she arranged a meeting with this new merchant.
“There’s enough business to go around. If there’s anything I can do to help, please let me know. But, what ever you do, just don’t undercut my pricing”, she said. After all, she had been very fair to her clients for many years, charging them $15 a cut – a price that both covered her expenses and earned her an honest living. He nodded in agreement, they shook hands and he left.
The next day she looked out her salon window and saw that he had opened up shop right across the street. Proudly displayed in the front window of his shop was a sign that proclaimed: $10 Hair Cuts!
Disappointed but not dismayed she began working on her window sign. The next day, she hung it in her window:
“I fix $10 haircuts”
A lesson to your small business
All too often we see businesses responding to a competitor’s low price with an even lower price. A lower price, they assume, is better than losing a potential client. The net result is often an even lower price by your competition and thus begins a frenetic race to the bottom, leading to a slew of challenges:
- Lower prices = lower margins, which open your company up to financial vulnerability, quality issues and decreased employee morale (to name a few).
- If a customer comes to you because your price is low, odds are they’ll leave you because someone else’s price is lower.
- Once you’ve set the bar it’s extremely difficult to raise it.
- We train people how to value us. If you value your products and services as cheap, how else can you customers view you?
This quote, by an unknown author, sums it up beautifully, “There are always two choices. Two paths to take. One is easy. And its only reward is that it’s easy.”
It’s easy to sell cheaper. It’s far more difficult to convince your market to pay more for you than your competitors.