To be or not to be competitive

Used in the context of business, the word “competitive” takes on a different meaning to what you’d normally expect. When a business or a customer uses the word “competitive” they’re referring to low or cheap prices. “Competitive” should be about the ability to deliver better value or a better performance to your customers than your competitors and not about a better price and yet many businesses promote competitive pricing as a USP.

So is it good to be “competitive” in your pricing and does it make it easier to win customers? Who does it benefit the most? The customer or ourselves as the service provider? And can we win customers without being competitive?

Is it a competition?

I would argue that it isn’t. Whether we’re a website designer, an accountant, a business coach, a social media expert, a butcher, a baker, a candlestick maker or any other profession for that matter, none of us work in exactly the same way or end up with exactly the same result as our fellow service providers. No matter how crowded our marketplace is we don’t have the same qualifications, experience, qualities, approach, ethos or the same connection with the customer nor do we interpret the needs of the customer in the same way. All these things make us unique and different to our competitors.

So why do we feel the need to be competitive? Is it because we believe that the only way to win customers is by charging the same as (or, even worse, less than) our competitors. Or that price is the priority for every customer? Or that low prices attract lots of new customers and lead to a higher volume of sales that in turn leads to higher profits?

Given how often the word “competitive” is attached to a low price structure you have to assume that we do. Or at least believe that our customers do.

So what’s wrong with these beliefs?

Well, to start with, 85% of SMEs undercharge for their services. That means all you’re doing is helping to further drive down the price. If you were to take the time to do some market research, you would find that of the other 15% there are some SMEs charging eye-watering sums of money for arguably no better results and they’re still winning (and retaining!) lots of customers thank you very much.

Yes, it’s true we all like a bargain and don’t like being overcharged but there are many examples of us being prepared to pay a lot more for something we value. If we were only driven by price, why would any of us buy an iPhone or a BMW or a Fitbit when there are much cheaper alternatives that do the job just as well? It shows there is not always logic to what we buy and that price is not always the deciding factor.

Higher volume of sales at a low price increases your workload with no guarantee whatsoever of it increasing your profits. If you really want to guarantee an increase in profits then it would be much better to increase your price rather than lower it with the added benefit that it would reduce rather than increase your workload. Frankly customers that are attracted to you because of your low price will likely end up more time-consuming and a pain to work with than those that appreciate your value and are prepared to pay more. Is that the type you want to attract?

Are you wrong to be competitive?

Not necessarily. There’s nothing inherently wrong with keeping your prices low but make sure the amount of value you bring to your customers matches the amount you’re charging them. Don’t offer a British Airways service for a Ryan Air price. If you offer a low cost price then offer a low cost service. You can always offer additional services but on the understanding that you charge extra for them. Otherwise you may end up out of business and out of the competition.

And there’s also a risk to the customer that they could end up with a low cost service that won’t bring them nearly as much benefit as a higher value, higher priced service. If you were to charge them more, and be in a position to offer them more value, that could be far better for them in the long run.

So what’s the advice?

Be aware of what your competitors are charging but then set the competition aside. You are you. An individual with many qualities and competences that your competitors don’t have. Promote the heck out of those differences and be brave enough to charge for them. There is absolutely nothing wrong with being more expensive. Like the Stella Artois slogan “reassuringly expensive” it could be an effective selling point and make you stand out. Many customers will often look at the price as an indication of the value they’ll get. The higher the price the more value they believe they’re getting… even when they don’t.

And if you’re struggling to get new clients then it’s likely not a problem with your price but one of three other things. Firstly, you’re rubbish at selling yourself and need to do a crash course on how to improve those skills. Secondly, you’ve introduced your price too early in the conversation and need a crash course on how to promote the value you bring. And thirdly you’re marketing yourself to entirely the wrong sector and need a crash course on customer profiles. If you want to charge premium prices you need to be working with premium customers.

Margot Clarke
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Margot Clarke

Margot provides business support to a variety of companies across a wide range of industry sectors. With an international background, she is highly experienced in helping business owners understand what’s really going on in their business. If you’re struggling to understand your numbers, Margot’s thorough approach to accounting allows you to control your cash flow and manage your figures, so you can meet your business objectives.