The problem with “we can beat any price” strategies

by Carl Natale on August 24, 2010

Flickr photo by BebopDesigner

Flickr photo by BebopDesigner

One of the most interesting and confusing aspects of business is pricing. I do not have a handle on it and I appreciate anything I can learn about pricing strategies.

I have two stories to compare. Each is about “we will beat our competitors’ prices” strategies.

Putting a floor on estimates

Blogger Jeff Zbar has a story about comparing prices on a flooring job. He went with a contractor who bid a price in middle of the cost spectrum. Two other contractors bid higher. One of those contractors responded by saying he could have matched the lower price if he knew.

Jeff wanted to know if the contractor couldn’t have just bid a much lower price in the first place:

It’s a fine line in small business pricing policies and strategies. Do you price what’s fair — or what you think you can muster from a client? Similarly, when working with vendors, do you beat them down, or assume the best price they’ve offered is the best they can do?

via Small Business Pricing and the Cost of Loyalty | Chief Home Officer Home Office, Home-Based Business, Remote Work, Telework & Cloud Computing.

It makes you look like you are padding your prices – charging what you think you can collect not what you think you’re worth.

By starting high with the intention of cutting the price if you get push back, you train customers to shop around. So when they find a lower price, why should they bother asking you to drop yours?

Price isn’t the only factor

A couple months ago I needed two new tires for an AWD car. I needed them quickly so convenience was a factor.

I called a tire retailer who was new to me. First, I had to go through an automated phone system to get a real person. When I got someone at the store, he quizzed me on my car even though I had the specific tire size and model I wanted. He also lectured me on things I already knew about the tires. Not that I’m a tire expert but it wasn’t the first time I bought tires for that car.

So when I asked for a price, he wouldn’t give me a price. He said to come in and they would look at what I needed and talk about the price.

Next, I called the Tire Warehouse. They put the last pair of tires I bought on the AWD car. So I knew they had what I needed in stock. They gave me a price which sounded reasonable. Then they told me if I had a lower estimate, they would match it.

So if I took the car into the first retailer, talked about what I needed, got a written estimate and took the car to Tire Warehouse I could have MAYBE saved some money. But my experience on the phone led me to believe I would lose way too much time on the first retailer.

Forget it. There was no guarantee that this strategy would yield any savings. So I went right to Tire Warehouse. They got to my car right away and installed new tires without any hassle. As usual.

The Takeaway

I paid for someone to put new tires on my car quickly without any hassle. Thanks to the Tire Warehouse, I had minimum disruption on a busy day. As happy I am with their service, their “we can beat any price” strategy isn’t a service.

To save money, the customer needs to research the competition. That takes time and effort that probably isn’t worth the potential savings.

When Jeff was pricing floors, he did a bit of research. He could have gone back to the higher contractors and countered with the lower bids. Maybe he could have got them to match. But would it have been worth the time – especially if they didn’t budge?

And it seems a bit dishonest. If you can lower your price in the face of a competitive bid, why didn’t you quote the lower price in the first place?

I would rather hear them say, “Yes you can go down the street and save a few bucks. But we will take care of you better. And our work is guaranteed.”
The smarter strategy is to understand your market and competition. Then price fairly on the value you deliver. When faced with a competitive bid, you shouldn’t have to lower yours. You should be able to explain why you cost more. (“To do the job right, we have to use better materials and take more time” for example.)

If you need the work and want to lower your bid, then pitch a less-inclusive job. Otherwise you’re telling your customers that you’re just trying to get as much money as you can from them.

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