Stand up and do it right.
There are a lot of ways to compete in business, but lowering your prices is NOT one of them.
In fact, the Price Wars phenomenon is one of the key problems that is killing our economy and our standard of living.
Small businesses and self-employed business owners are notorious for competing on a price-only level and are therefore just as guilty as big banks and corporations are for helping ruin our economy.
Lowest-price competition is training the public to expect low prices. And consumers will almost always accept lower quality for lower prices. That produces a cycle of consumerism where we shop based on price alone. People don’t spend as much, so businesses don’t make as much. Businesses don’t make as much, so they can’t pay their employees or suppliers as much. Now those employees and suppliers don’t make as much, so they can’t spend as much. They cut back on their own expenses. Now the businesses they frequented aren’t making as much so they have to cut back… and the cycle grows.
Eventually, prices drop so low that the companies have to shut down. When that happens, all of those people who once had jobs are now out in the workforce looking for jobs and accepting even less just to be able to work. They get hired, make less money, struggle to make ends meet, and work themselves to death as their quality of life declines. They spend less and their spending affects the businesses they frequent. As those businesses start to lose money, they make cutbacks. And the cycle grows even larger. And this cycle spins in only one direction… down.
Most of us already know this and understand it. But what can we do about it? We all want to pay less (see, we’re already trained).
I have one idea. And it’s very simple, but also very difficult to do…
Pay what something is worth. That’s it, that’s all.
And for businesses, that means CHARGING what you’re worth.
Basic business strategy tells us how to do just that… You need to know how much to charge to cover your expenses AND make a living. But there is more to it. You also have to know how much YOU would personally pay for that same product or service if you weren’t the one providing it. That’s how you determine a fair price. It’s a simple concept, but not always easy. However, that’s how it HAS to work, if it is to work at all.
If you are in competition with another business and they charge less than you do for the exact same product or service, then they are likely making sacrifices just to get the business. And, while some sacrifices are necessary, many are not. Outsourcing jobs, finding cheaper materials, working longer hours for the same pay… it all saves money up front, but it will all kill a business in the long term. Cutting prices only encourages people to seek out cheaper prices. And cheaper prices ultimately mean reduced quality (of products and of Life). We should not have to suffer and struggle if we are providing a good product/service at a truly fair price.
Granted, the foundation of our economy is debt-based and will always be unstable, but our economy THRIVES on competition and the small businesses are no longer competing. They are giving up. They are giving up by reducing their prices to the point that they can no longer make a viable living. Somewhere, someone will ALWAYS be willing to do what you do for less just to get the business. But what they don’t realize is that they are killing their own future. By making it clear up front that they will charge less than the competition, their customers will always expect them to charge less and they will never be able to justify being paid what they are actually worth. They will continue to struggle and work twice as hard for half as much. They will always be in debt and they will always be chasing the next dollar. They will never “catch up”.
The reason this is important is because low-price competition trains the public to expect to pay less. By continuing to lower your prices, you are not simply meeting consumer demands… you are affecting consumer behavior… in the wrong direction.
Charge what the product or service is actually worth. It will be tough, but well worth it in the long run. You won’t be damaging your future and, more importantly, you won’t be harming your industry. Stand up and do it right.
Want another opinion? Read what the Harvard Business Review has to say on the subject: https://hbr.org/2000/03/how-to-fight-a-price-war