When Your Competitors Are Cheaper

Pricing is always complicated with the presence of competitors.  You have to consider the quantitative effect on your sales arising from any change your competitor might make to its pricing, and how a competitor will respond when you change your pricing.

If your competitors are cheaper than you there are two things you can do.  One of the two is smart and the other is usually stupid.

The stupid thing is to try to compete with them on price – by cutting your prices and perhaps even starting a price war.  Unless of course, this is your pricing strategy.  But as discussed already, it is very rare that this is an appropriate strategy for an accountancy practice.

The smart thing to do is not to even try to compete on price and pursue a pricing strategy of having a highly differentiated service that adds value, so that you can charge a premium price.

If you choose the smart route – not to compete on price - then you will need to master one of two key skills… and preferably both of them:

  • You will need to prevent your customers worrying about your higher prices
  •  And you need to become much better at justifying your higher prices – in other words, much better at handling price objections.

Strategies for beating the price crashers

The guiding principle is simple… if two competing products are the SAME then customers will choose the cheapest.  But if one of the products is different and better, then customers will pay more for it.

Always remember, the right customers will gladly pay more when they understand that they are getting more. The general rule is:

  • Most people don’t really buy on price
  • They say they do… but that is only a ploy to get you to reduce your prices
  •  Don’t fall for it!

Of course, there are some people who are price sensitive.  You may even have some amongst your customer base.  Here are some of the characteristics of genuine price buyers; they:

  •  Do all the complaining,
  • Take up lots of your time,
  • Tell others how little they have paid,
  • Leave when they get a cheaper offer, and
  • Forget to pay you.

The key advice is: avoid them wherever possible.


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