To increase profit and extend customer relationships, adding worth is a better strategy than cutting what you charge.
When you make a personal purchasing decision, do you buy based on price or on value? If you buy strictly based on price, then you’ve likely stayed at uncomfortable discount motels, poured some pungent wine down the drain, and ended up with a stash of unused junk. Cheap motels aren’t a good value if you can’t relax, box wine is not a good value if it tastes bad, and you paid too much if your bargains remain buried in your closet. At home and at work, savvy buyers recognize the difference between price and value—what something costs and what it is worth.
In a hyper-competitive business environment, companies are often tempted to lower prices to attract more buyers, but this can be a fatal mistake. As pricing specialist and thought leader Stephan Liozu points out, price wars are bad for companies and for industries as a whole. “It is easy to go down that road without realizing the consequences,” says Liozu, “but engaging in a price war is an irrational, reactive, dangerous behavior with no positive outcome.”
Liozu suggests that instead of reacting to your competitors’ price cuts and pondering how low you can go, businesses need to explore how they can add value and thus increase their pricing power. Here are three key steps you can take to identify and shore up your value proposition so that you have a sustainable business model and avoid a price war.
Pay attention and learn. Be in constant contact with your customers and prospects. Know the markets they target, the processes they have in place, the challenges they face, and the goals they have set. Become an expert on their industry.
Adapt. “You must adopt a mindful, agile mindset and an innovative spirit. Explore your value proposition and what distinguishes your company from your competitors. Look for ways that you can leverage your assets and technology, innovate, and enhance the services you offer—in a way that better meets your customers’ needs,” explains Liozu, who has a doctorate in management.
Transition away from transaction-focused sales. Instead of focusing on closing the deal, focus on becoming a long-term valued strategic resource and partner. If you are selling a mere commodity, you can always be undercut. Instead, sell priceless solutions to your clients’ problems. That’s true value.