Why What Your Competitor is Charging Doesn’t
Matter and When It’s OK to Price Cheap
Why What Your Competitor is Charging Doesn’t Matter and When It’s OK to Price Cheap
It’s pretty standard for us all to be checking out the price range of other services. As a general rule there will always be somebody that prices higher and another that prices lower for the same service or product. Lately I’ve been seeing a lot of people stress over their competitors offering the same service at a huge discount and wondering what that will mean for their business. Here’s the thing – it doesn’t really mean anything for your business except that you’ve wasted valuable time comparing yourself to someone else who is playing a completely different ball game. Seriously, it’s like saying Soccer and Gridiron are the same sport!
For example, in my business (Resume Writing) my cheapest competitor is $49 while my most expensive is about $400. I’m priced midrange at $149. The $49 service is web based only with no follow up support, offers a generic service, no guarantee and is suitable for certain occupations only (factory workers, cleaners etc). My $149 service is a personalized resume with phone support, a guarantee and unlimited rewrites until its perfect. The $400 service offers face to face consultations. I don’t care that someone else is making $400 a resume because I don’t want to offer face to face consulting (Heloooo, think of the public liability costs if someone trips down your stairs). Likewise I don’t care that someone else is providing resumes for $49 because we cater to totally different demographics for totally different reasons. My customers need a resume that competes with the other applications; their customers just need their work history written on a piece of paper.
To further illustrate my point think of the difference between Gucci and Kmart. Gucci sells a t-shirt for $100 while Kmart sells a similar t-shirt for $5. Even if Kmart didn’t exist, the Kmart customers are not going to shop at Gucci. They just need something functional to wear so they will mend the shirt they have, go without or learn to sew and make the t-shirt themselves before forking out $500 for a t-shirt. The thing is that the same thing works in reverse. If Gucci didn’t exist, the Gucci customers still wouldn’t shop at Kmart because the t-shirt wouldn’t make them feel special or exclusive or meet the same quality standards as Gucci. Even though both Kmart and Gucci sell t-shirts they’re not really competitors because their customers buy for totally different reasons. If Gucci is going to lose sleep worrying about the competition they should be focused on Prada not Kmart.
The other thing I’d like to mention is that neither Gucci or Kmart is in the wrong. They both provide a valuable service to their customers. So often lately their seems to be a focus on ‘not pricing cheap’. That’s great advice in most cases but there are exceptions to this rule so if you are currently pricing low, don’t stress. The thing is you will need to run your business differently if you are going to go low. There is no point offering a low price if your service is exactly the same as your higher charging competitors. It just puts you on the fast track to burnout. For example, if I was to offer my resume service for $45 I would pick up more customers but………..I would have to find a way to manage this and would have no choice but to outsource the resume writing to a third world country (possible perhaps but imagine the errors), I would need to remove my guarantee because I would not have the margins to cover refunds and my whole service would need to be email based with no personal contact and all automated systems. I LOVE doing my own work so this is not an option for me but it obviously works for others because I’ve seen it done.
Basically what I’m saying is that it’s ok to price low if that’s what you want to do. We can’t all price high. I mean imagine how many customers Kmart would pick up if Big W and all of Kmart’s competitors suddenly started charging Gucci prices. There is nothing wrong with being the Kmart of your industry (I personally freaking love Kmart) but you will need to run your service on a completely different model which is usually going to mean outsourcing to a third world country and providing less customer support. So if you are pricing low now is a good time to have a think about if you are going to be cool with this or not. If the answer is no and you still want to provide personalised one on one support for customers raising your prices is one way to achieve this.
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