My competitor has started a price war! .... What should I do?
"I've got your manual, but I need help!" ...The caller was a lady from a suburban Beauty Salon. She was at her wit's end. The story she related to me was a familiar one. ..The guy down the road is undercutting her like crazy. She can't see how he's surviving at the prices he's charging. SHE certainly couldn't.
She tried to retaliate by running a discount voucher promotion based on the DIY Guide. It worked reasonably well while it was on, but now business has dropped again. "People seem to want lower prices, but I'm barely paying the staff wages at these prices. I'll go out of business unless I do something!"
Well, when the phone call finished, she was happier. Eager to try my suggestion. I'd like to share it with you, as the strategy applies in developing a competitive edge in virtually any business. But I'd like to make some other points too.
Firstly, to caution readers of my materials against skimming through them, then "lifting" ideas - simply copying them.
Secondly, the lady from the Beauty Salon is paranoid about PRICE competition.
Maybe the guy in the other Salon has made up his mind to put her out of business by price cutting. And while she puts so much credence on price, she's helping him do that. But really, how do you put a price on "beauty"? Sure, if you're selling bread or milk, and the guy down the road sells it cheaper, that's where people will go. But people go to a particular Beauty Salon for reasons often far removed from price.
Certainly, unless you are a Vidal Sassoon, you have to be "price comparable". But - that still gives you a fair leeway for setting your own price. The perceived preoccupation with price is more often in the head of the supplier than the consumer.
Recently, I was debating about the importance of price with an acquaintance ... a well known financial advisor. I made the point that he could increase his consulting fees (which I felt were far too low) substantially, and get MORE business, not less. Skeptical as he was, he did increase his fees, by 30%. No one has batted an eyelid. If you're good at what you do, people will (want to) pay for it. Charge too little, and they won't believe you have what it takes. There's an age old rule in negotiating that you should always let the OTHER person give their terms first- Often, you'll find they offer MORE than you were going to ask.
One last point here. You MAY risk losing customers by increasing prices. But then, you can't be all things to all people. While you may have made a decision to cut prices to the bone and compete at the lower end of the market, you'll still only get a segment of the market. There are people who'll never buy at that "cheap" end, for various reasons. They'll form a niche for someone who sells further up the market. Where you position yourself is a decision you have to make. Once you have, you should promote your "position" to the hilt. Personally, I'd prefer to be up the scale somewhat, away from the nerve racking high volume, price sensitive, fine margin end.
But, back to the Beauty Salon lady. Having given her the above arguments, I suggested she try a different tack. I asked her those inevitable questions: "Why did you go into your business? Are you particularly good at what you do? What do you feel you offer that is different, special, to your customers?"...
Yes, she assured me, her salon DID have something special ... a particular flair for hair design, and beauty consulting, rather than just "cutting and penning". People "rave" about their appearance after a session with her staff, she continued. So, given that one of our deep human drives is to have beauty, and THAT can't be cut-priced, I suggested she promote her ability to do "make-overs" ... transformations from plain Janes into beauties.
Furthermore, I suggested, rather than offer discounts to EVERYBODY, as she'd done before, she should offer a lucky draw prize of a "make-over" valued at so many dollars. Or give two away. Or ten. It'd STILL be cheaper than giving discounts to everybody, and would position her where she wanted to be, rather than as a discount shop.
Then, she could follow THAT up by publishing the photographs of the winners of her lucky drawing in her local paper ads. And follow THAT up by writing to the hundred or so who entered but didn't win, offering them some small incentive to come in, "as a thank you" for entering. Maybe even a "two for one" offer if they bring a friend, (thus broadening the customer base even more), or a little "beauty pack" of goodies ... (free samples provided by the manufacturers).
Clearly, the possibilities are there if she pursues them. But more to the point, possibilities like this abound in virtually ANY business.
Posted January 31, 2005
More Business-Building Articles By Jay Abraham:« Falling in love with your clients
