Don't Let Price Be Your Identifier
Here's a tip that you should remember for your whole career in business: Don't let price be your identifier. So many times in business, we see new people come on board and say, "oh, we know how to do this cheaper than them". They look at their competitors and they decide to price themselves just underneath them, or even ridiculously lower in the thought that they're going to be bringing in new customers. The problem with doing this is if you're just new in business you're competing against someone who has a lot more money than you already. How? Well A, because they've been charging more and because they've been around in business longer.
Be Competitive, but not too competitive
You can be competitive on price, but you can't let it be your identifier. The reason for this is simple. If you have a product that you've seen your competitor selling for a $1,000, and you think "wow, $1,000, that only cost $200 to make! I'm going to sell it for $300, make 50% profit, be less than a third of the price of the competitor, and everyone's going to come to me."
The problem is you know about you. You know about your competitor. Your competitor (and potential customers) at this stage don't know about you. The reason you know about your competitor is they've spent the money on the marketing. They've been able to do this because they're charging more for their product. They have the resources for a marketing budget they're able to do that.
If you choose to sell for the lowest price you'll get to a spot and it might work for a while. You might be able to grow, you might be able to make this money, but eventually what's going to happen is you're going to break. There's going to be something you need to do. You either need to start doing marketing or you need to invest in other tools, which are going to cost you money. This, in turn, is going to drive your price up, or in the absolute best case scenario you don't need to invest anything. Everything will work perfectly fine. Just remember though that your competitor who's been charging $1,000 for a product that costs $200 probably has a bulk-buying capacity.
When they hear about you they will go, "huh, who's this? I'll blow them out of the water by absolutely smashing out more marketing and more sales." They will drive their message directly to your listeners and this will destroy your business. It happens all the time.
A Cautionary Tale From Network Video
Let's go back to a story that I remember from many, many years ago. This was when Blockbuster and Video Easy were still around. Blockbuster did $6.95 overnight rentals, so Video Easy did $6.95 overnight rentals. Everyone was happy. Then, another competitor that came in known Network Video or Go Video depending on where you're from in Australia.
This new kid on the block came in and, "I'm going to do $2.00 rentals on Tuesday." Now they had put Blockbuster and Video Easy, the two biggest stores, on notice. "Okay, $2.00 rentals. We can do that, no worries." So Blockbuster went to $1.00 rentals on Tuesday, Video Easy went to $1.00 rentals on Tuesdays. Network Video, which is an independently owned DVD chain couldn't compete with that. Everyone already knew about Blockbuster, everyone already knew about Video Easy, so when $1 Tuesdays happened they went to these businesses and they were absolutely smashed with work.
Both businesses didn't make much money on Tuesdays, but they did on the late fees, which is where they were making money at that time. What happened six months later is Network Video went bust. They were no longer in the area because they could not afford to do what they were doing. They thought they would come in and rip up the market, but all it did was came in and destroyed their business. They came in so cheap and that move put them on the radar of Video Easy and Blockbuster much sooner than what they would have liked, which ended up killing their business.
Make sure you price accordingly but don't have price as your identifier is the key message. That's the take home from this. There are many things that you can do better than just being better on price. Being better on price ultimately means the customer's you're getting are going to be the customers that are looking for the best price. They're very price conscious people and that's not a problem, but there comes a time where being cheap is expensive.
If you're going to be dealing with people that are looking at getting your service or product at the absolute cheapest price, they are probably going to be the customers that are wanting you to spend more time with them and more resources, because the rest of their products and ecosystems all are run around the model of let's do this on the cheap. You can price yourself and position yourself differently to your competitors on the service and the value that you add to your customers.
We treat our customer network very, very kindly. We treat them like family. We make sure that anything we're doing we test and trial in our own business, and then if it's great we go and talk to them about it and let them know about how it can help their business out. They really are family. Our customers are an extension of our business and without them obviously, we wouldn't be able to survive. If you're always competing on price you won't have the money to be able to build a relationship with your customer. You won't be able to have a great business that's going to strive in the future and service your customers properly.
There Will Always Be a Bigger Shark
When you're driving prices down, there's always going to be someone that's bigger, better and more powerful that can drive it lower. Even if it's just temporarily to blow you out of the water, they can do it. Make sure you don't drive on price. I cannot stress this enough. Having said that, don't go and sell a prestige service where you're not offering that prestige value to the customer. Always give out more than what you take. I have read a book by a guy named Bob Burg called the Go-Giver. It is amazing and I live my life by the rules that are written in that book. It's all about giving away more than what you're receiving.
Don't Give it Away
That's giving away more value, giving away more time, giving away more information, giving away a higher quality of service and product at a reasonable price. Don't give it away for free, don't try and undercut your competitors, but be different in more than just price. If you do, it will scream very loudly to your prospects and your existing client base.