Avoid a Race to the Bottom

Race to the Bottom for Business

(Photo by easylocum)

If you’re like most service providers, you’ve been feeling ever-increasing competition: from overseas, from virtual assistants, from under-employed people, and from online service competitions (for logos, design work, software development, website creation, animation, etc.). So how can you compete – both short-term and long-term?

Your first reaction might be to drop your pricing. If they are charging $500, and you are currently charging $1000, shouldn’t you likewise cut your pricing to measure up favorably? If you do, you’re in a race to the bottom – where the only person who wins is your customer. Dropping your price sends the wrong signals: your offering is a commodity (anyone can do it), your previous pricing wasn’t fair (you gouged your previous customers), and you’re not in touch with the needs of your prospective customers. Short-term, it may ward off losing a few customers, but long-term you’re risking your business viability. You’re making less income, so either you need more clients to keep profitable – or you’ll need to cut corners in your offering (and risk losing your highly prized top-quality perception).

Instead, compete on value. Focus your marketing message on what significant benefit you provide that others can’t (or won’t). Perhaps it’s deeper knowledge of subject. Extra training you’ve had that gets results. Additional formats of your work (at no additional charge). Comfort in knowing that you speak “their language” and understand “their needs”. You may even choose to further distance yourself from the “low-cost” competition and raise your rates. If you position yourself as an expert, with a clear benefit to your clients (that they’re willing to pay for), you create more value for your business (and your customer).

Short-term, you may lose some of your bargain-hunting prospects to the low-cost leaders, but these people weren’t your long-term customers anyway. If you’re in business long enough, you’ll continue to have competition. Just make sure that you have a strategy to stand out from them.

2 thoughts on “Avoid a Race to the Bottom

  1. That race you speak of Jay is so tempting, especially after losing a deal or a client. But as you well say … It is a slippery slope we start down. I remember an old adage, “it is only expensive if it does not work.” Thanks for a good and timely message, Dale

  2. Great and timeless article. True enough there’s plenty of competition out there in just about every field. As an event and portrait photographer, hardly a day goes by without a stinging reminder that clients have many – lower priced -options. What I am tempted to say is, “You certainly can pay less, but will you be happy with the results?”

    My business model is built on the providing the highest quality in both service and artistry. Many, though not all, people who know my reputation are willing to pay for it. I accept that. They can also choose to pay more for others, too.

    To succumb to downward price pressure takes the vendor down a one-way street. Once a service provider is perceived as a bargain brand, there’s little chance of reversing direction, especially in a small, tightly wound market like the one I’m in. The better strategy, as you aptly point out, is to continue to improve the offering, while holding prices as steady as possible.

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