For all the uncertainties entrepreneurship entails, there’s one aspect of it you can count on. Once you prove market demand, competitors will try to replicate your success. Often, their lure is a lower price.
Though price wars are par for the course in business, it’s one battle you’re better off not playing. Here’s why steering clear is critical to your long-term success, and how to do it.
Figure out how to be different. Establishing a meaningful point of differentiation can act as an insurance policy of sorts against pricing wars. In marketing terms, it’s called a unique selling proposition (USP). The concept is simple, in theory: When you set your brand apart, you’re able to market something other than a product or service (which can be imitated), or price (which can be driven lower by competitors, and dictated by the market).
More often than not, your USP has little to do with what you sell. It’s the perception you create about your business: Convenience propositions, service, special touches in your packaging or fulfillment, scents, music, mood and lighting in your retail environment, or your support or dedication to a cause or idea. Often, it’s about crafting the “je ne sais quoi” that makes people and businesses memorable.
Know who you want to attract. Any business, regardless of size, location or industry served, can benefit from identifying the audience it most wants. And obsessively working to stay in tune with what they want, need and value.
Though marketing starts with demographics, carving out a strategically desired impression with your target customer is about so much more than age, income and zip code.
Start by creating your own profile of the “ideal customer.” Write down what that person does for a living, what she does in her spare time, what challenges, stresses and pleases her, the music she listens to, the other brands she buys and why, and the ideals that he or she embraces. Then, take your suspicions to the jury of public opinion.
Listen relentlessly. Entrepreneurs are usually highly passionate about their business. But that very reality makes it critical to remove personal bias in order to market effectively, and stay out of the pricing game.
People welcome the opportunity to share their ideas and opinions, and simply, to be heard. (If you doubt how strong that desire is, consider the success of YouTube).
In many ways, social media and online communications have leveled the playing field between big businesses and smaller outfits who once had limited access to market research.
Post a simple survey for your Facebook fans, or on your website. At the point of sale, invite customers to complete a one- word fill in the blank sentence about why they shop from you. Periodically post questions to your Twitter followers about their favorite brands, why they love them, and what they’d love someone to offer.
These highly cost-efficient ad hoc research sessions can reveal new opportunities to make your business different. Every bit of information you gather takes you one step further in rising above the price wars.
Be willing to lose. There is a scary truth to resisting price wars: You will lose some customers. But price shoppers don’t contribute to sustainable business models.
Consider cell phone carriers. More than half of the global population now owns a mobile device. Turn on the television for a few minutes, and you’re nearly guaranteed to see at least one advertisement from a carrier promising the lowest price. Will some customers jump at the offer? Yes. But most will flee when the next lower price offer comes along. Costs to acquire these customers are high, relative to the revenue they give the business. For big businesses, the marketing expense may be justified. For smaller businesses, they can be crippling.
Staying above the pricing fray isn’t about a one-time sale. It’s about customer lifetime value (the total net profit you stand to realize from a customer in the long-term).
When you prioritize the audience with the greatest potential lifetime value, your business eventually becomes less vulnerable—to everything. These customers are those most likely to refer you to others, and probably more willing to forgive your errors. They’ll be the foundation that allows you to test new products and services, evolve, and expand, with less risk.
They may not come at the lowest acquisition price—but they don’t expect you to be the cheapest either. They are the key to your businesses’ future.
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