You might remember the Office Depot commercial that features a small barber shop owner, Dan, looking out across the street where a large chain is opening, advertising $6.00 haircuts. Dan doesn’t think he can compete with a $6.00 haircut. But then he has an idea — he goes to Office Depot and buys a large sign to hang outside his barbershop that says, “WE FIX $6.00 HAIRCUTS”. The large chain closes five months later.
Initially, many business owners faced with a competitor reducing prices may think that they will need to match the price or lose the sale. But most times that’s a sucker bet. By matching price, you concede that the quality is the same, or close enough. Dropping prices will surely eat into your profit, and you might find yourself lowering quality to compensate. It’s a slippery slope that can do significant damage to your reputation.
But Dan was smart. He didn’t succumb to the temptation to compete with pricing. He decided to compete on the area that he excelled in — quality. It reinforced his business and his pricing, and painted his competitor into a corner. After all, we all know you get what you pay for.
Like most businesses, you are faced with increased competition every day — whether it is DIY software, a storefront operation or perhaps a new accounting firm just opening up. And those who have nothing else to compete with often choose to compete on price. That might be a bit tempting for some of your customers, particularly if money is tight.
Don’t be lured into playing that game. Instead, you need to figure out a way to change the game and compete on your terms. Reinforce your core positioning and force your competitors to react to you.