I am constantly amazed by how many business owners, in a variety of industries, try to grow their businesses primarily by undercutting the competition. It is a common mistake many home staging professionals make, so today I thought I would explain why this is ultimately a losing strategy.
First, let’s talk about how it happens. I’ve spoken with many home stagers who explain their strategy this way: “There’s another home stager in my town, but I can offer lower prices and a higher level of service. I’m going to advertise my low prices and gradually win business from her/him.”
While this may sound like a reasonable strategy, it fails for several reasons:
1) It leads to a “price war.” Play the scenario out in your head—when one business lowers their prices, how do you think that the other will respond? Nine out of ten times, the response of the business being undercut is to slash their prices. The result is a “race to the bottom”, where both stagers constantly drop their prices until the point of no return, which means they aren’t even making a profit.
This is a lose-lose scenario!
2) It leads to unsustainable commitments. Sure, promising customers you will provide more service for less money sounds great. But what ends up happening is that you take on so much work for so little revenue that ultimately it isn’t even worth your time. Your clients aren’t happy because the quality of service declines, and you aren’t happy because you’re working too hard for the relatively no money. This is not a place you want to be!
3) It eliminates customer loyalty. You DON’T want clients choosing to do business with you because of low prices. Why? Think about it—if they’re choosing you solely because of your low cost, what happens when someone else opens up a business charging even less? The answer should be clear… your clients will take their business elsewhere. They were doing business with you because of your low cost, and they’ll move on as soon as someone else can beat your price. On the other hand, when clients choose you because of your expertise and because of the value you provide, you’re no longer vulnerable to being undercut.
Can you see why the lowest price strategy is a losing one? It’s so important to understand that it is based on a faulty premise of the business environment as a “zero sum game.” In other words, that the only way to gain business is to take it from someone else. This simply isn’t true. There is MORE than enough business for everyone. By establishing your value and working a plan to reach your target market, you can attract business without undercutting your competitors. Not only does this strategy allow you to grow your business, but it allows you to do so in a sustainable and profitable way. And THAT’S what we’re all after, right? If you need help creating a profit driven plan email me , as a business growth strategist I will help you achieve success.
