In Part 1, we established that your value proposition, not simply your prices, that matters. We've seen that there is no such thing as "the cheapest" and that competing purely on price is futile. We've identified you perceive your own prices pessimistically, and explained the genuine advantages you have over Big PLC that more than offset their advantages from size and buying power.
Armed with all that, we're now ready to take on a challenge: Big PLC is selling a specific product cheaper than you. Should you tackle this problem? I suspect you're thinking of the last time you were in this position and saying wholeheartedly "YES". Can we tackle it? Absolutely. Here are ten practical ways that you can tackle those sorts of price issues …
1. Promote a better product.
If Big PLC is offering a budget laptop at an unbeatable price, promote a higher-spec model that you can compete on. Promote it on the basis of its benefits with specific emphasis on what it can do that the budget laptop can't. Everyone knows what's better costs more. So it's right your better laptop is more expensive.
2. Identify the customer's needs and sell a more appropriate product.
Your customer may have been seduced by Big PLC's price, but is it what they really need? Delve deeper into their requirements - find out what they should want. It may well be that they really need other product(s) to achieve what they want, in which case you're back in business!
Let's go back to the budget laptop. If your customer wants it to play the latest games, they'll be sadly disappointed. But if you don't ask the question, you'll be left with the "can get it much cheaper elsewhere" and your customer will trot off to Big PLC thinking you're not competitive.
Ask and you may end up with a happy customer buying your gaming system, indebted for your advice and grateful for you saving them money on a product that wouldn't do what they wanted it to.
3. Bundle with initial services
You may not be able to get anywhere near Big PLC's price, but you can offer better value. Bundle in some initial services such as set-up, registration, system optimisation, software installation etc. Your product may cost more, but you're selling more value.
4. Bundle with ongoing services.
This is like the previous point, but concerns future services. This could be a free system optimisation, virus or spyware removal after six or twelve months. As well as making your value proposition more attractive, this has two further benefits. First, it gives you the chance of work in the future. Second, even if the customer doesn't take up the offer, you've got a reason to contact them. That means a chance to rekindle the relationship, if not identify a need and make a sale.
5. Bundle with other products.
You may not be able to price compete on a specific product, but you'll have other products that you sell significantly cheaper than Big PLC or have enough margin in them to allow significant discounting. Don't sell these products individually - use them in bundles. This is because you can use the margin to engineer a competitive – or cheaper – price than the equivalent package from Big PLC. Cables, peripherals, accessories and consumables are good examples of products you can bundle, but make sure that they are relevant to the main product and allow the customer to do something that they couldn't without them.
6. Emphasize your competitive products.
If you know price is an issue with a specific product, don't promote it (and certainly don't promote your price). Make sure that your prominent price promotions are those where you are significantly cheaper. Cables are usually a good example. Don't be afraid of highlighting the cost at Big PLC or elsewhere to emphasise the value and to overcome customer scepticism. For example, if your customer sees a cable that costs £19.99 at Big PLC advertised for £6.99 in your shop, their first reaction may be to assume that it can't be the same product. By stating clearly "normally £19.99" or similar, you not only overcome this potential problem but also emphasise the great value you are offering.
7. Choose your battles.
If you know Big PLC are offering product X at an unbeatable price, don't stock product X. Chances are that Big PLC are promoting it for a limited period as a loss leader. If you really feel you can't compete, don't compete. Put your focus into other products that don't have the same price issue. Move on.
8. Don't be greedy.
Is it the case that you really can't compete, or is it you can't make the margin you want to or normally do. Be clear on what margin that you need to make. For example, you don't need to make the same margin on bought in laptops you do on system builds. You may have an expectation of making say £100 per system, but much of this is to cover the time you've spent assembling, installing and testing and the future warranty costs. None of this applies to a laptop, so you should be prepared to sell at much lower margin.
9. Emphasise your value.
You may not be able to match Big PLC's price, but there are a whole host of other reasons why customers should buy from you. Promote these conspicuously and unashamedly. These may vary widely from "what happens if it goes wrong" to more emotional aspects such as keeping it local or supporting independent retailers rather than the faceless Big PLC.
10. Explain the price.
Your relative price may shape your customer's perception of you. They may assume that if Big PLC can sell at a low price you're being greedy by charging a higher one. Don't be afraid of saying that you can't match or get anywhere near the price and explain the reasons. Remember Big PLC often uses loss leaders to draw foorfall. And manufacturers dump stock into the market to clear inventories. Explain these and not only will your customer now understand, you may also generate a positive attitude towards you (bravely soldiering on against the might of Big PLC) and a negative attitude towards Big PLC (using their huge wealth to sell products at unsustainable prices to undermine smaller local businesses).
And a bonus one …
Offer a take-back scheme on old systems and laptops. Offer a discount for customers who take you up on the scheme and apply it to the new system to make it compititive. Then, refurbish the old systems, and offer them as a cheap alternative. This will give you an offer significantly cheaper than Big PLC's lowest price budget offering while still giving you great margin.
We've now established that it is your value proposition, not simply your pricing, that really matters (whilst acknowledging that price plays a part in your value proposition).
We've also established that focusing purely on price is a losing strategy, and that trying to be "the cheapest" if futile – there is no such thing.
You've hopefully realised that your perception of your relative pricing is unduly biased towards a pessimistic view, and that – whilst there are relative strengths and weaknesses – you absolutely CAN compete successfully with Big PLC.
Finally, we've listed some examples of ways to address specific price issues. Let us know if you find it useful or not and why. As ever, we welcome your feedback.
As always, the business advice we give is exactly that, advice! what works for one person may not work for another.