Competing on value rather than price

When starting a new business you naturally want to secure your first few clients as quickly as possible. To make this a reality, lots of people decide to start competing on price. While this can be a short term option to gain a foothold within your market, it is never a long term solution.

If you look at the majority of successful businesses or individuals, they have focused on providing value to their customers rather than concentrating solely on price. The reason for this is when you try to compete purely on price, there will always be a company or person that provides a cheaper solution, in most cases inferior to what you may have.

All too often, people get fascinated with the notion of pricing and trying to undercut their competitors but this has a knock on effect that most people don’t realise, it actually cheapens what you have to offer.

Take an example of a car that is designed to take you from point A to point B. Now you might have one car which is valued at £5,000 and another valued at £50,000. What makes someone choose the higher valued car? Aside from their budget, it’s the value derived from owning a more expensive car that takes you to your destination in more comfort, luxury etc.

The same principle can be applied to virtually any type of product or service. Therefore, the focus of today's blog is to highlight why you should be competing on value rather than price.

Perceived value pricing
The definition of perceived value pricing is the value which customers are willing to pay based on their perception about the product or service. In order to command a higher price, you need to build the perception and reality of what you are selling.

For example, here at iOB Business, our partners provide a range of technology solutions that help businesses with their online marketing. With our technology platforms being built from the ground up, our partners can demonstrate the uniqueness of our technology and match it with the expertise they provide to each client.

As a result, you can start to raise the perceived value of your solution by demonstrating the many benefits the client will receive by purchasing your solutions. Having a strong product or service, coupled with a library of resources or materials, can really help any business raise the value of their offering.

Justifying your pricing
While it is good to build up a quality perception of your product or service, it is just as important to deliver on this perception. For instance, if you claim that your solution can help a business reduce costs and increase revenue, then you need to make sure your solution can achieve these goals for your clients.

Failing to justify your pricing with the actual product or service that has been delivered can have long term implications for your business. We have all heard the saying that it is cheaper to retain an existing client than to find a new one. For this reason, it is critical that you service your clients well and actually exceed their expectations.

This will help you build long term value from each client and is something we advocate to all partners that join our network, namely, building long term residual income from each client you work with. By having happy clients, you have an ideal opportunity to cross sell or upsell additional services that can boost your revenue.

Price conscious buyers
Although you should always get in the mindset of competing on value rather than price, it is important to recognise price conscious buyers. Most business owners and decision makers are looking to get the best value for money and price does invariably come into the equation.

You can identify price conscious buyers based on the areas they focus on most. For example, if they start talking about the price/cost early in your conversation, you can safely assume that price is the determining factor.

When communicating with this type of buyer you should consider reiterating your value proposition and if you do need to discount slightly, always ask for something in return. This could be a referral, review or even asking the buyer to make a decision at the meeting.

Race to the bottom
All throughout this blog we have focused on presenting the value of your product or service and using this as the main way to compete. However, what actually happens when you compete on price?

Quite simply, it is generally a race to the bottom. There will always be individuals or companies in the marketplace that will be cheaper than you. However, in most cases they will have an inferior offering to you. It is important to understand that almost every sector has three pricing levels.

Firstly, you have the low cost options that centre around small margins and high volume sales. Secondly, you have the mid-tier price point that is designed to be a good balance between affordability and value. Finally, you have the high ticket items that compete purely on value.

In our opinion, you should be operating in the mid-tier/high ticket range as that is where you can demonstrate most value to your prospects. Indeed, here at iOB Business, although our partners have full flexibility with regard to how they price their solutions, we always advocate competing on value rather than price.

Summary
As we have seen during this blog, competing on value is a lot more than just presenting the benefits of your solutions. It is critical that you appreciate why you should be competing on value and resist the urge to discount your offerings to a level that makes them undesirable. By building value from the outset, you can actually differentiate your business and command the price you deserve.

To find out more about how we help you launch a Digital Agency and compete on value, please contact a member of our team.

Until next time, take care.