There is a myth floating around that price is the number one driving force behind a customer’s decision to buy at a particular store. The myth gains creditability when you consider your own buying patterns; when all things are equal, who wouldn’t choose the cheaper price? But there in lies the juxtaposition – all things are very rarely, if ever, equal. This business truth allows small to medium businesses to not only survive, but to thrive.
It can not be disputed that price is never a factor in the consumers minds. It is true that some people buy where they get the cheapest price, but there are two important things to consider. Firstly, are you specifically targeting price conscious customers? Do you really want low return bargain hunters shopping with you? If you do and unless you are the local $2 shop, I would ask the question – why?
Secondly, price is not actually the primary reason for most people making a decision to purchase. In fact, price only ranks fourth in order of importance, behind functionality, reliability and convenience. If being cheapest were all consumers where interested in, then the only business that would exist would be ones with the signs in the window that say ‘Lowest Price Guaranteed’. But we know this not to be true.
It would make sense, to develop instead, a holistic marketing strategy that builds customer loyalty by maximizing value and offering services above and beyond what your cheaper competitors do. Pricing is a key part of positioning and it needs to be seen in context with who you are and what exactly you are offering. In other words – know your market and aim yourself squarely at it.
When I was in retail, my pricing strategy was based on firstly identifying, then targeting high-value customers. I decided I would no longer cater for customers after a bargain – that’s what K-Mart is for. I stopped the often random and knee jerk-ness of discounting and instead put up all my prices between 10% and 40%. Some products I was now selling at 20% over recommended retail price and to make my position even more precarious, they were available right next door at my big chain competitor at the cheaper prices.
Was I making a costly mistake? I aimed my business at my niche market – 14 to 24 year old girls and young women. My stores looked completely different from the big chains. I sought out professional designers to re-vamp them to appeal to my target audience; young, funky and a happening place to be. By contrast, my competitor’s stores looked old and staid - boring, even. It was, by contrast, a place a young girl would never want to be seen dead with their parents in. But it was not just about image. I also developed systems and trained my staff how to use the right sales strategies. I motived my team and created a fun atmosphere for them to work in. I gave incentives for customers to refer friends. We published a newsletter for our data base and even started an exclusive customer loyalty club.
Amongst all of this, not one of my customers ever queried the new higher prices, not once. In fact, in the coming year, I nearly doubled my profits because my expenses stayed the same and my G.P. increased. I was clearly not competing on price and that was just fine because in the minds of my customers, all things were not equal.
There is a market for goods and services at all price points, but cheapest is not really where you want to be. Small and medium business can’t and shouldn’t be trying to compete on price for the simple reason that consumers are not as interested in it as you think they are.
If you are a retail business looking to increase your margins, contact Greg Holmsen at Acquire Business Services © 2007 on 0407743276 or gholmsen@bigpond.net.au and mention that you were referred by Innova Business. |
