The most common mistake small business owners make is to play the deadly game of price war amongst their competitors. A price war is the process of regularly dropping prices to create a competitive edge in the marketplace. Price wars are often the culprit into why many small businesses fail.
The following article will explain why a price war is a mistake for small businesses.
♦♦ Low prices creates a cheap perceived value ♦♦
The first effect of playing a price war with your small business competitors is that it destroys the perceived value of a product. Subliminally, most people perceive a product that’s priced low to be cheap. A product with low prices come across as that being poorly manufactured and doesn’t provide the backend support (such as tech support) as customers concede that a business won’t have funds to follow through with each purchase.
Instead of playing the deadly price war, keep your prices as they stand now or even consider raising them. The key is to provide additional value other businesses do not offer for the same product – you must create a perceived value that it’s a premium product. Once you create your own unique, premium product, customers will be more likely to follow your brand and have a great customer experience.
♦♦ It’s impossible to compete with big business ♦♦
Big business, with millions (even billions) in marketing funds and buying power, are simply too much for small businesses to compete with. It’s common to see a small mom & pop store go under after a big box store moves into town.
Because of the size of a big business they are able to command cheaper prices from manufacturers which, in turn, drive down their prices. Small businesses don’t have this same buying power which means they will need to stand stout with their prices and work more diligently to create a better customer experience.
Likewise, small businesses can benefit from chasing a niche market. A niche market is a market within a market which many big businesses won’t bother with. These niche markets allow your small business to create a unique angle on products and services which, in turn, helps to divert involvement in a price war.
♦♦ Price wars destroy profit margins ♦♦
When your small business continually drops its prices to compete with other competitors you’re slowly chipping away at your profit margins. Eventually, profits will be so low that the business will fold.
The problem with using price as your unique selling point is that there will always be other competitors that are willing to drop their own just to snag a quick sale. As prices plummet so does the business. Don’t get locked into this deadly game; instead, keep prices constant but always bring forth aspects of business that your competitors are lacking, let your customers know and do whatever it takes to keep them in the sales funnel.