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In this special feature of 'Ask Entrepreneur,' Facebook fan Tony Lam asks: How can you increase sales when competitors are playing the price war and have already established a firmer foundation and relationship with clients?
The simple answer is that dropping the price should be the last thing you do to be competitive. Your margins are probably already tight enough and the last thing you want to do now is engage in a price war that results in "lose-lose." Using price as your tool is an indication that you need to get back to developing what makes your company a unique proposition. For any product or service, there can only be one business that's the cheapest – and is that really what you want to be known for? Even if you do, it's a tightrope to walk.
Your Chance to 'Ask Entrepreneur'
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Dec. 19: Angela Jia Kim on Growing a Business
Remember, price is a myth. While the buyer may shop the lowest price, it is value that they really want, even during tough economic times. People buy products and services that solve problems. Rather than trying to be the cheapest, meaning you'll probably have to accept next-to-nothing margins, spend time determining where you can deliver value that is greater than the price. When value exceeds price, price is no longer the issue.
A customer once told me that a competitor was willing to sell his training package for half of what I charge. I countered by demonstrating how his company would get six times more value from my product, which justified it being twice as expensive.
A simple way to increase value without lowering prices is to bundle a package of products or services together. When you take this approach, customers assume they're getting more value because they receive more of a solution than what it would have cost to buy each item or service separately. Now you can start holding the line on price and introduce a new product line and hopefully future revenue stream.
If the market for your products or services has been commoditized, you'll have to find ways to stand out among competitors. First, become completely convinced that competing solely on price is a business of Russian roulette. Sooner or later it turns out badly.
Next, write down ways you can differentiate yourself and your product and/or service from the competition and offer more value. Then, you have to work at becoming the voice of authority in your industry and separate yourself from the second-tier players, whether it's through social media or traditional public relations. Finally, train your people daily on how to handle the difference between price and value. Price is what you pay, value is what you get.
The bottom line is this: Always look for ways to go the extra mile. I was recently in Cleveland delivering a seminar. When it was over I drove two hours to meet the client of a competitor to steal away his business. The owner was blown away that I traveled to see him, which my competitor never did. I have utilized this tactic for years and it has enabled me to not only take away business but at higher prices. And you can, too.