Time and again I hear people lament that their competitors’ products are just as good as their own, and prices have to be low to win sales. The general assumption is that price is the most important factor to the customer. That assumption is usually wrong. Earlier this month there was a series of posts on Facebook that showed customers decide first on the product that meets their needs, and they are relatively loyal once they have made that decision.
Earlier in 2015 my niece began running a weekly poll of sorts among her Facebook friends. She calls it Philosophical Friday and asks a single question each week, which friends can answer however they please. Last week the question posed was, “What is the one common item that you just can’t bring yourself to buy the off-brand/cheapest option? Household items, food, clothing, shoes…whatever. The answers were mostly focused on consumer products, many of which people might consider to be commodities.
There were 39 different products mentioned, the top 10 (in terms of frequency) were:
- Cereal
- Dish Soap
- Toilet Paper
- Tampons
- All Products
- Coffee
- Mayonnaise
- Shoes
- Cheese
- Cookies
Notice the 5th item in the list – All Products. Some of the respondents said they would never buy the cheapest option for any product. Conversely only one person said they always go for the cheapest option. That person represents the one example or anecdote that you might hear in your organization about why you need lower prices. And following that advice will usually cost you money.
The Facebook survey demonstrates that customers are not homogenous, and most customers are to some degree quite loyal. Think about it in the context of your own personal and professional buying habits. How often do you price shop your favorite products, or switch providers due to lower prices? While some readers are no doubt very price sensitive, others are much less so. We all form opinions about products, brands, stores, vendors, and service providers we like. As long as the item, service or provider satisfies us, we have some tolerance for price disparity.
The implication for your business is you should not compete on price! I don’t mean you can charge anything you want, but I do mean you don’t have to beat or match your competitors’ prices all the time. Your products and services may have commodity-like characteristics, but they are not commodities. There are features and characteristics of your products and services that appeal to customers, which they value. Focus on those elements in selling to current and potential customers.
Unless you have a significant cost advantage, low prices are something all your competitors can match. If you are trying to sell based on low prices, you are not selling anything unique or differentiated. Customers consistently demonstrate that they decide what and where to buy based on how the products, services and providers meet their needs. And their primary needs are not price. So why sell on price rather than on the most important criteria?
Perhaps you are thinking, “Yes, but there is a segment of customers that is very price sensitive and I want to sell to them.” Well you are right, that segment exists. If you want to sell to them, find a way to do it without destroying the price/value relationship in the rest of your business. Come up with your own low-price brand or create a service offering with fewer high-value features. The customers who want the lowest prices will make trade-offs in features to get those lower prices. Your other customers continue to buy based on meeting their needs.
Customers make purchase decisions every day that are consistent with the Philosophical Friday poll, and price is not their most important criteria. Remember that. Don’t take the easy road and sell based on lowest price. Sell the ability of your product or service to provide real value to your customers.
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