We Duct Tape Marketing coaches often talk about the perils of competing solely on price and how to create a marketing system that helps you move from competing on price and in many cases, charge a premium for your services. This idea of narrowing your focus and raising your prices is often met with doubt, at least initially. I recently came across an article that does a nice job of illustrating this point.
Over on the Wall Street Journal’s site, FRANK V. CESPEDES, ELLIOT B. ROSS and BENSON P. SHAPIRO wrote a nice piece titled Raise Your Prices! The subtitle of the article sums it up nicely – Face it: Most companies can’t compete on price. And the good news is they don’t have to.
That’s right, you don’t have to compete solely on price. According to the article, “performance pricers” are very good at 3 core activities (I’ve added the corresponding Duct Tape principles in parenthesis):
- identifying where they can do a superior job of meeting customers’ needs and preferences (defining your ideal customer and your remarkable difference)
- shaping their products and their business to dominate these segments (remarkable difference and packaging your business)
- managing cost and price in those areas to maximize profits.
The article discusses a company that, for a long time, believed they were selling a commodity (rubber bottle stoppers). Then they looked at things from their customers point of view and discovered that their stoppers could improve their customers’ packaging-line speeds, lowering their operating costs. They also discovered they could help their customer’s customers, by providing color coded stoppers to help them reduce errors.
I won’t repeat the whole article, but in general, the company went on to 1) determine the value of these benefits to their customers 2) use that value to determine a price and then 3) figure out a way to deliver that value at the given price and make a profit.
And here is my favorite part of the story – after a time, the company got together with their customer to review the actual value (base on data rather than guessing) and came up with a new price that benefited both parties.
Here is a summary of my “lessons learned” from the article:
- Small business owners don’t have to (and shouldn’t) compete on price.
- Be aware of what your customer is REALLY buying
- Learn to ask “What do my customer’s customers need?”
- Determine the price based on the value to the customer first, then figure out how to deliver it for a profit.
- Like everything else in marketing, it is important to review pricing. Review the assumptions used when determining them as well as what actually happened. Then adjust as necessary.
I encourage you to read the entire article for yourself here. I’d be interested in your take-aways from the article and how you may be able to apply them to your practice or business.
