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!
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:
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.
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:
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.
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.