Price-Cutters

Most value-based businesses hate the idea of price-cutters — those who go into a market, offering a low price (often for an inferior product,) while pretending it’s all the same. But price-cutters have always existed and there’s always been a market for them. So what place do price-cutters really fill in the current economy?

David:                   Hi, and welcome to the podcast today. Cohost Chris Templeton, and I will be talking about the value and worthiness of price-cutters in business. Welcome back, Chris.

Chris:                     Hi David. You know, one of the things that seems to frustrate salespeople more than anything else are price-cutters. Some people complain about them. Some people buy from them and some do both. They complain about their competitors who cut prices, but then they buy from the price-cutters who sell to them. What is up with that?

David:                   Good question. What is up with that? I think there are people who sometimes get lost in whatever’s going on. We touched on this in a previous podcast, but particularly when things are challenging in business, the idea of price-cutting, the idea of going for the lowest cost alternative can be appealing. And there are a lot of people who I think have made really difficult, tough, and just flat out wrong decisions about moving things forward in their business, by simply cutting price, by going with lower cost alternatives, that aren’t nearly as good hoping that they’re going to be as good. And it just doesn’t usually happen like that.

Chris:                     You know, when I got together with my wife, she was buying, for herself, Ferragamo shoes, which were, even 30 years ago, $200, $300. And she wanted me to buy those high end shoes. And I was like, “Oh honey, this is not a good idea, not a good use of money.” And then she said, “no, you’re buying a nice pair of shoes.” And three or four resoles later, they are so comfortable, and such a pleasure to wear, we somehow in the process of price-cutting, give up on the idea of the full value of what we’re buying. Don’t you think?

David:                   Yeah, I think a lot of people do. And I mean that’s, to some extent, an extreme example, not completely extreme, but there are some people who are always going to go for the highest quality product. And that’s great. I remember Dan Kennedy, marketing guy, was talking about this one time. And he was saying that in every market, there are people who will always stay at the top hotel, the Ritz Carlton of whatever that particular city is. Regardless of what city they’re going to,.they’re always going to stay at the most expensive hotel. Similarly, there are people who will always stay at the lowest cost alternative. They’ll always stay at the Motel Six or whatever the lowest cost alternative is in a market. And of course the bulk of people fall somewhere in between.

Chris:                     Right.

David:                   And then the question becomes — and this is what I thought was brilliant about his comment — who do you want to build hotels for?

Chris:                     (Laughs) Wait, wait, let me think about this one for a minute,

David:                   Right? Yeah. Who do you want to build hotels for? And I thought about that in my own business so many times over the years. “Who do you want to build this for?” And for me, the types of clients that I love, the types of clients that I really enjoy working with are smart. They’re focused. They think. They’re willing to engage in conversations. They don’t just accept the lowest common denominator as an alternative. They’re willing to engage. They’re willing to invest in themselves and their businesses, growing things. And those are the types of people that I build my businesses to accommodate. So when there are people who come along and they want the cheaper thing or the cheapest thing or the low cost thing, or they think it’s going to do the same thing, in a lot of cases, I’m like, you know what, go for it. Knock yourself out. Because what’ll end up happening is I’ll end up working with someone else in your market who “gets it,” and it’s just going to be better for them.

Chris:                     And you know, it is such a pleasure — I had this come up just recently, a client’s wife sent me an email asking what it would cost to set up her website and that sort of thing. And it was clear that this wasn’t a budget that was going to work for me. And so I spent 10 minutes just writing an email with what I thought her options were, that I didn’t think my budget was going to be hers, but you could do this, this, this, and this. And you know what? It was an absolute pleasure to send her on her way, know that my client, her husband, is going to be pleased with what I had to say to her. And at the same time, I’m not in a situation where I’ve got somebody who wants to do a low cost site, wants to spend more time than they’re willing to pay for. And everybody walks away happy. We can do that. But when you think about it, what are the primary reasons you think people become price-cutters

David:                   In a lot of cases, from what I’ve seen, because it’s not even really about so much what I think. It’s what I’ve observed over the years. The people who tend to cut price are the ones who essentially don’t have any other method of competition. They don’t know enough about the benefits of the products and services to be able to sell it effectively. They don’t feel comfortable and confident enough in what they sell to be able to charge more for it. They default to price-cutting when there’s no other thinking involved that allows them to get to a better place. So to me, price-cutters have always been about what’s easy. What’s fast, what’s expedient, as opposed to what’s good. What’s smart, for both my customer and myself. And if you can create a product that is a little better and you can charge more for it, and if you can articulate why it’s better, then people at least have an opportunity to make an intelligent, informed decision. But a lot of times price-cutters, try to pretend that what they’re offering is similar or comparable or the same as a higher priced competitor. And it’s not always true. I mean, sometimes it might be true, but in a lot of cases it’s not. And so the lazy seller will very often default to price-cutting. Whereas the value seller, the person who actually offers something that creates value in the marketplace is able to charge more.

Chris:                     It really hits it right on the head. The price-cutter doesn’t see the value in their own product. I mean, I just think that’s such a telling thing from a sales standpoint. And in a lot of cases, I imagine it’s not a very good product.

David:                   Well, right. It’s about easy and lazy. In other words, it’s easier to just cut price than to try to figure out what I want to tell them. And it’s lazy if I just say, okay, well, “Hey, mine’s cheaper.” And then you attract the Motel Six crowd — the people who just want to go for the cheapest thing — then that’s what you end up with. But the problem with that, the biggest problem I see with that, Chris, is that when you’re selling to the lowest common denominator in terms of price, there is zero loyalty., Because if I’m the cheapest and I’m selling you something for the least amount of money and you come to me, cause you like cheap, and then somebody else comes along and they’re selling it for less, you’re going to go to them. And you’re saying, “Oh, this one’s cheaper.” Then you’re going to go there. So now I’m gone. Then if somebody sells it for less than what that person offers, you’re going to go there because now that person is no longer the cheapest. So there is zero loyalty among the lowest common denominator of prospects who shop on price. And so when I look at that, it makes me not want to be in that space at all, not competing for the people who just want the cheapest, who just want the lowest price, who don’t care about what it’s going to do for them or how it’s going to help them or what the quality is. I always prefer to leave that to someone else.

Chris:                     Such a wise piece of advice, sir. You know, it goes right back to what we talk about in the last podcast in regards to quality of life. Quality of life in the business is huge. And if that’s the way you’re working, as a price-cutter, quality of life isn’t going to be very good, is it?

David:                   No, I don’t think it will. Because again, the types of customers that you attract by price-cutting are not the types of customers you’re going to be able to do business with long term.

Chris:                     Yeah. So what is your strategy for figuring out if somebody is a price-cutter versus somebody who’s just offering a really solid value?

David:                   Yeah, it’s tough to tell sometimes. Because one of the reasons that people shop at Walmart is because they can get, in many cases, very similar product. Or, if it’s a brand name, it may be an identical product for less money. It’s just, they operate on a lower profit margin and they’re able to sell very comparable things for less money. So in some cases, people will go there because of that. But I think that’s very different, particularly in service businesses, where the quality of the product and the quality of the offering can be SO different in terms of the deliverable. The thing that’s being offered is just so much worse or so much better that the higher price is more than justified because they’re getting so much more in so many cases. So I think you need to look at what is really being offered here? And if what you’re looking at is comparable to what you want or if it is what you want and if it’s cheap and if you want it, then I’m not saying don’t get it.

Chris:                     Right.

David:                   What I’m saying is, know the difference. Be able to look at apples versus oranges, apples versus grapefruit, apples versus firetrucks. Because in a lot of cases, people try to add confusion to the mix. They don’t want you to be able to see if it’s a low cost item, why it is so much lower cost. Because it doesn’t offer the things that would actually make it worth more, the things that would actually create value. So just, even within your question, you’re talking about telling the difference between price-cutters and those who just offer value. People who are able to offer a good quality product at a reasonable price. So a lot of that doesn’t have to do with the actual ticket, the actual price tag. Because you could spend $10 for something that’s worth $2 and you’ve overpaid. Or you could spend a thousand dollars for something that’s worth $2,500. And you’ve got a great deal. So it’s not about the amount that you pay it’s about what is it going to do for you? How is it going to help you? How is it going to further, whatever it is that you want to have furthered in your life from investing in it. And if it does, then do it up! But at least go in with your eyes wide open.

Chris:                     You know, the other side of this is, especially right now with things being as tough as they are for so many businesses, it’s going to be tempting for people to cut their prices. What do you recommend for people that are considering doing that?

David:                   If you’re thinking about cutting your prices, just to be competitive, ask yourself if that’s really where you want to go. If you’re overpriced, if you’re charging too much for what your services are worth, then maybe you should be cutting price. Maybe it shouldn’t have been as high as it was to begin with. So I think an honest evaluation is probably the best place to start. Asking yourself, okay, well, what’s behind this? Why am I cutting my price? Is it just temporarily to give people a bit of a boost to help them through a difficult time? That’s one situation, if it was too much to start with and you’re adjusting because it should be less, then, you know, that’s a different situation. If you just, again, are trying to appeal to the lowest common denominator and you’re just cutting price because what you have isn’t worth what you’re selling it for, then make your product better! You know, make your product better and charge more for it. Again, it’s much easier for people to cut price than it is to improve the quality of the product. But nine times out of 10, you’re going to be better off doing the latter, trying to improve and increase the quality of what you’re offering and attracting the types of customers who actually appreciate that value. There’s a quote I heard years ago from John Ruskin and the quote said “There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper. And the people who consider price alone are this person’s lawful prey.”

Chris:                     It’s a great point. You know, I think the other thing to look at is if I’m in a situation where I am regularly running up against price-cutting competition, there’s an issue there isn’t there.

David:                   Yeah. There’s definitely an issue. And sometimes if it’s just a price-cutter who offers an inferior product or service, then you can explain that. And the people who understand the difference are still going to go with you. And the ones who don’t understand the difference are going to go with the price-cutter. And they’re going to get what they paid for, or less, because that’s usually what happens. They end up getting something that’s cheaper and worse. And in a lot of cases, I mean, we’ve had this happen in our business. I can’t tell you how many times where somebody has come along. They’ve done something with us. They love what we do. They’ve been with us for a long time. They find an alternative that’s cheaper. They go there. And then within a matter of it could be, days could be weeks, could be months. They come back. They’re like, “Oh, bad move. That was a bad call. I want to come back.” And as we talked about in a previous podcast, if it’s somebody that you’ve been doing business with for awhile, that you like, and that you admire, that you want to do business with, you welcome them back. If it’s somebody who was a pain from the beginning, you’re going to say, you know what? Sorry, it’s just, it’s not a good fit for us anymore. And at that point we move forward.

Chris:                     Bottom line. I think we can both agree that we want to be in the value business. Don’t we?

David:                   I certainly do. I think you do.

Chris:                     Absolutely.

David:                   But hopefully the people listening to this podcast are more inclined to want to be in that group.

Chris:                     Absolutely. Well, we sure hope so. And if you been teetering, we hope we’ve pushed you over to the value side of the equation, where life is better, in business and outside of business. And you’re not dealing with people that are looking for the lowest common denominator or the lowest price at any expense who just, let’s face it, they’re not that fun to do business with, are they?

David:                   Nope.

Chris:                     Okay. That’s all we have time for today, but if you need help minimizing short term damage to your business and positioning yourself as the go to person for the recovery, go to TopSecrets.com/call to schedule a strategy session and find out if David and his team can help you. That’s TopSecrets.com/call.

David:                    These are very strange times, and it’s likely the next 90 days in business are going to be critical for you. So if I offered to work with you, virtually, over the next 90 days, to help you to minimize the short term damage to your business, and position yourself perfectly for the long-term, as the go-to person in your market, while everyone else is too afraid to move, would you take me up on that offer? It’s important to understand that this is not for everyone. Specifically, you must be serious about doing what’s necessary to grow and scale your business right now. This is what’s going to help you to minimize short-term damage and position yourself as the leader in your market during the recovery. You must be ready, willing and able to invest in yourself, your business, and getting new clients. You must be willing to follow very specific instructions. You must be friendly and coachable. And, you must be ready to start now. This is not for those who want to “wait it out.” If you meet all five of those criteria, schedule a one-on-one strategy session with us to determine if we’re a good fit to work together. Please, only schedule a time when you know you’ll actually show up. Just go to TopSecrets.com/call. That’s TopSecrets.com/call.

 

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