Current market pressures on businesses are coming from all angles: Rising supply chain costs, increased labour costs due to short supply, and rocketing energy bills. These hikes drive competition in most markets, so you need to think about how you will adapt. Cutting your prices to retain or win business is not the answer; you should be increasing them. Read more to hear why!
Leading on price will paint your business into a corner
I recently read an article where someone, in several years, successfully grew a service business from zero to £3m by providing the cheapest price in the market, outsourcing the work to India and minimising administration. His customers were small businesses who thought the service was generally expensive, so £80 per month was money well saved. When customers became more knowledgeable of what they were buying, they questioned the quality and realised they were wasting £80 per month and it was better to spend more and get a decent return. As a result, his business started to unravel and then spiralled downward.
The crucial point here is that it is challenging to later increase prices successfully for the same service when you lead about your low costs. Peddling cheapness and piling customers high will usually result in customers not accepting price increases. They will look around.
Reassess your model.
Business is a balancing act. You need to charge enough to cover your costs and make a healthy profit, simple as that. When market pressures ratchet up, it’s obvious that a go-to is price discounting and special promotions. While this can be very powerful it has to be utilised sparingly and in the right context. Unless, as an absolute last resort, do not cut your prices across the board. When was the last time you heard of anything in this world getting cheaper? Virtually nothing does, it’s called inflation, so the same needs to apply to what you do. Business owners struggle because they cannot see how they can simply increase their prices and worry about customers going elsewhere.
This shouldn’t stop you. What you need to do is the following:
- Consider which customers are currently making you money and which aren’t. Decide whether you will be better off losing the ones taking up all your time for little reward so you can concentrate on the ones who spend more with you.
- Reimagine how you communicate your business proposition and how you package it; look at how you can make your business look “premium” and your service become a beacon of excellence – how will you start to look and be the very best?
- Remember that plenty of customers prefer to pay more for things on the expectation they will get a better product and/or service.
- Realise that if you were to increase your pricing by 10%, or even 20%, the extra revenue could offset any customers you lose, meaning you will be doing less work for the same money.
Evolve and adapt your business, not slash your prices.
To charge customers more, you need to look like one of the best and then you need to be one of the best. The experience of your products or services must feel “reassuringly expensive” (to quote Stella Artois). Communicate the value.
How to “price upwards.”
Many business owners are afraid to spend money in challenging times. One of the worst things a business can do in a more competitive market is cut spend where investment is critical.
To give you two big examples:
- Cut spending on marketing and advertising and
- Trying to buy or deliver what you do more cheaply (cutting costs that erode the customer experience).
Both above will hinder what you are doing and send your business into eventual decline. Both are knee-jerk decisions congruent with a race to the bottom, and you’ll suddenly find yourself on that trajectory without even realising.
Checklist to support a 'Premium Positioning Strategy'
- Update and refresh your brand image to look premium.
- Your logo
- Your website
- Anything else potential customers may see
- Rethink how you talk about and present what you do to customers down to the very words you use to describe it. Be more “Rolls Royce excellence” and less “Skoda hatchback affordable”.
- Look at new things you can add to your service that your customers perceive as valuable. Start with the quick and simple changes that make a difference your competitors don’t drive, then look at the more important things later.
- For example, introduce more customer service follow-ups, ask your customers about the pain points, do things to address them, and show you listen and care.
- Look at who the best in your business are and consider why then benchmark your company against theirs. What can you do that they are? Like most things in life, you have to learn from and imitate the best to become the best.
These things don’t all happen overnight but lots of small things can.
Start yourself on the road to being better and eventually being the best. Remember that perception comes first and that this is everything, but you must then deliver on the expectation you create. Charging more is easy; feeling worth it is the hard part.
To quote Aldo Gucci, “Quality is remembered long after price is forgotten.”
If you need help giving your business image an overhaul, get in touch with us at TFA. We help businesses just like yours to completely transform and, more importantly, to grow.