If your business strategy is to compete over price, then be prepared for a nickel-and-dime race to the bottom of the barrel.
In my book, All In, I talk about the different businesses I've started and how I've never really invented anything new. People love to talk about "the first-mover advantage," but to be honest, I don't buy in to that methodology. I'm not a pioneer. Never have been. I've never done anything first. What I've done is do it better. I've made a career out of being the second guy in the door. And I've been successful with a number of different companies, simply because I found opportunities where I felt I could execute much better than any of the competition. And more times than not, that's all that's required in order to win.
Do I have something against innovation? Heck no, I love it. I just believe it's far better to invest in something that has a proven track record. Let the pioneers do all the research. Let them do all the hard work, go through all the bugs, and figure out what works. Let them find out who's the customer and who isn't. You can sit back and watch how the first guys did it, then try to improve it.
That said, you can't just walk into a new industry (especially one that has been long established), and offer the same product at a slightly cheaper price. So how else do you convince prospective customers to go with you instead of your competitors, without the lure of price or some other value they are not receiving today?
Here are four ways I like to think about solving this problem:
1. Be tenacious and truly passionate about the cost of your product or service.
Here are some words of advice: thinking the customer will pay for what you're selling, regardless of price, is insane--and yet a good many entrepreneurs make this mistake.
In my first company, Wilmar, we had 38 percent gross margins. This was unheard of in our industry, and we were known as the price leader--which meant we were selling our products at the top of our industry's price point, but negotiating our vendor costs as low as possible. Now, the reason we were able to do this was because we weren't pricing ourselves absurdly high, but we also weren't trying to undercut the competition. We knew our value. We learned where a buyer's threshold sat. But most of all, we created an internal culture built around balancing these two components of our business.
You can't just arbitrarily pick a premium price and expect customers to hop on board. You have to work your way up to being a price leader by learning how to present the value you provide outside of price.
2. Customer service has to exist at the core of your business.
I've written about the importance of customer service in the past, but when it comes to positioning your value as a company, the way you manage customer expectations can dramatically impact what you charge.
Take Apple for example. Apple provides a remarkable customer service experience. They took the concept of bringing your computer in for repairs and turned it into a luxury shopping experience. They invented the concept of walking in with your laptop and being able to get one on one help and expertise. And now, they run regular workshops in their stores for customers that want to use Apple's software but aren't sure where to begin. All of these things only reinforce a customer's desire to continue buying Apple products at premium margins.
Do not underestimate how much customer service can impact a buyer's decision.
3. Develop pricing strategies that fit the industry and customer profile.
Consider your target customer's lifestyle.
If you are selling a software product to traders and high net-worth individuals, that customer profile is going to impact the way you think about price. Contrast that with selling a software product for low income individuals to get started investing, and your price point is going to be very different.
The truth is, the art of pricing your product of service comes down to clarity and understanding of your customers more than anything else. How much value you provide doesn't matter when you've effectively out-priced your target market. Which means you have to come up with ways to present your value in a way that is clear and easy to understand based on the type of person you're selling to. Otherwise they're going to go with a competitor simply because they feel more "understood" in their selling environment than in yours.
4. Technology should be at the core of the value add.
As often as possible, you should be thinking about how to incorporate technology to your company.
In every business I've started, tech was always the centerpiece of our "sell." I was never afraid of spending money to make us more efficient, or enhance the customer experience. For example, at my current company, LendingOne, we are very competitively priced and profitable--but we achieve this because of our tech and streamlined processes.
Especially with the way the world is moving, tech is no longer just a tool. It's actually seen as an advantage to many of your customers, and very well may be the reason they decide to buy from you opposed to everyone else.