In the movie comedy Ruthless People, Danny DeVito plays a vicious fashion executive who at one point snarls about how deeply he despises any salesman who cuts his price to get orders. Now imagine that character listening on the phone while the kidnappers holding his wife for ransom lower their demands. It’s a
hilarious scene: You can almost see the hot blood rise and burn a hole in the top of DeVito’s balding head.
On a more serious note: How often do you cut your prices? There is a time and a place for everything — including price-cutting — so long as you do it selectively and for a strategic reason. Suppose a low-margin quote on a small job gets you a chance to show your stuff to a customer with huge long-term potential. That may be a good bet.
But as a way of doing business, price-cutting is not rewarding. You’ve heard the reasons why a dozen times. Maybe you’ve worked your way past the habit — or never had it — and if that’s true, more power to you. But if you still struggle over pricing (and even many long-standing companies do), then maybe it’s worth asking why.
My experience shows that price-cutting is often less a conscious decision or a business strategy than a symptom of weaknesses in the business and its management. Yes, for some companies — Wal-Mart and Motel 6 for two — low price is a strategy, and it works spectacularly for them. But chances are it doesn’t work so well for you. Here is what a constant impulse to “race to the bottom” may say about you:
1. You need to plan more effectively. If you had a business plan, it would include a vision for the kind and level of service to provide, how your people and equipment will look, the kind of lifestyle you expect, and the income you want your employees to enjoy. You would invest to fulfill that vision and set rates and prices accordingly, with reasonable attention to the needs, expectations and means of prospective customers.
If your plan is inadequate, or you have none, you’ll tend to chase any business that helps keep the lights on. To do that, you may fall into competing on price. Once you do that, you’re letting competitors (usually not the best companies in town) dictate how you run your business. You’ve lost control. Instead of working to a profit plan, you’re scrambling, hoping there’s enough left at the end of the month to pay your salary.
2. You need to improve your salesmanship. Quoting prices isn’t selling. Neither is haggling over prices. Selling is about convincing customers that your service has value — that you can solve a problem for them and do it better than the other guy. It’s also about providing what customers need instead of what they think they want.
Suppose a customer wants a lateral cleaned after the sewer has backed up for the third time in four years. You could quote a price against competitors the customer has called. Or you could suggest a line inspection that would help you identify — and then correct — the root cause of the trouble.
“Mr. Smith,” you might say, “I could clear your line today and maybe have to come back next year and do the same thing again. Now, what if I could fix it so you won’t have to worry about your sewer backing up anymore?” Do this and you’re on your way to a discussion that could lead to a profitable job — and a satisfied, loyal customer.
3. You need a sharper value proposition. At the end of the day, what is it you offer to customers? Is it just a basic cleaning job performed for a competitive price? Or is it a set of less tangible but in the end more compelling benefits? Like prompt service backed by a guarantee? Peace of mind? Respect for the home and property? The right service, done right the first time? Sell values like these — in your advertising, in your office staff members’ phone scripts, on your web site, in every customer contact — and you elevate yourself out of the price game.
4. You need to target different customers. Some people are simply price shoppers by nature. You’ll never bring them around. Decide whether it’s worth your time even to deal with such people. If not, forget about them. Resist the temptation to quote prices over the phone to people who are obviously just calling a list of several companies pulled from the Yellow Pages.
Instead, develop a customer profile. Target businesses in certain industry sectors, people of certain ages and income levels, people who have been good customers in the past, and people with other characteristics that indicate they appreciate value. Direct most of your advertising and promotion to people who fit those profiles.
5. You need to develop more respect for your business and your services. You are a professional; the services you offer are essential. You shouldn’t devalue them by selling them for the lowest dollar.
I once attended a town meeting where citizens criticized the volunteer fire department budget. The fire chief promptly stood up and defended his operation. Every man in the department was fully trained, he said. Every one was a licensed emergency medical technician. Department members were on call around the clock to cover every corner of the township. “I would say,” the chief asserted, “that you’re getting by real cheap with a real good service.” That was the end of the discussion.
What would you say in defense of your business if someone challenged your prices? Perhaps it’s worth your while to develop a value statement you could give if called upon — and to put a little passion into it the way that fire chief did.
If selling on price is working — if you like the way your company is running, you’re content with your profits, and your employees are happy enough to stick around — there may be no reason to change. But if you’re like most business owners, you’d really rather not play the price game. Make a resolution now to learn how to aim higher.
