We live and work in increasingly competitive environments where new companies are starting up, established businesses are tightening up, and others are being forced to close down or shut up. Many small businesses hate the idea of competition and quickly resort to dropping prices in an attempt to stave off any threat. My experience tells me that competition is one of the healthiest elements of being in business. Handled well, it keeps you sharp, honest and tuned in to your clients’ true needs.
Being an accountant I have summed this up in a little formula:
Benefit to Customer – Cost to Customer = Value to Customer
Let’s apply this to the scenario I mentioned above where one of your competitors might drop their price in an attempt to present themselves as better ‘value for money.’ An alternative to dropping the price, while still increasing the value, could be to increase the benefit instead.
Value is worth more than money!
Let me give you a real-life example. Two electrical contractors are looking to service the same client who operates out of six large offices across Hertfordshire. Both are capable, give a reasonable level of service, and tidy up after themselves. Let’s give them a score of 20 each for the benefit that they deliver. Likewise, they both charge similar rates for the maintenance contracts and one-off projects. Let’s give them a 10 each (resulting in a ‘value’ score of 10, using the formula above).
Determined to win the business for themselves, Sparky & Sons Ltd decides to drop their price by 2. This changes their ‘value’ score from 10 to 12 (20 – 8 = 12). Light ‘em Up Ltd is about to respond by dropping their price by 3, when someone suggests another approach.
Instead of entering a price war with Sparky, Light chooses to offer free PAT testing to each of the offices. They looked at their numbers and realised that providing the service would equal around 1 unit of cost, but was likely to represent added value of 5. Compared to Sparky’s 12, Light’s new ‘value’ score sits at a healthy 15 (25 – 10 = 15).
They do now have a very slightly higher cost of delivery to consider, but the business is now secure and both Light ‘em Up Ltd and their customer are better off than when they started. That is the power of competition and reacting to it well.
Perception is worth its weight in ‘sold’
There is an important point to remember here, and I cannot impress upon you strongly enough how much this matters. Despite the numeric certainty that my previous example portrayed, the reality is that ‘value’ is highly subjective. It is determined only by perception. So, while it was a smart move to introduce free PAT testing, how the offer is delivered matters more.
Perception of value is determined by many factors, and these are summed up in one word – communication. Here are a few tips about how to communicate your ‘value’ well:
1: What do your brand, image, packaging, website, vehicles, staff, and products say about your business?
2. Do you have a good reputation, testimonials, case studies (and if so do you share them)?
3. Is your marketing positioned as ‘what we do’ or ‘what customers want’? The latter is better!
4. When was the last time you actually asked some customers what they think, like or need?
If you take some time out over the next few days to think about and take action on these points – your ‘benefit’ score will automatically increase. This will make your business more secure (with all of your customers), protect your price and margins, and stave off any attacks from your competitors.