Have you ever lost a new customer to a shop down the street who undercut your “fair and reasonable” price? Your first instinct may have been to match the lower price and win the order. But, a better decision would be to let the business go.
It’s not a bad decision letting a customer walk provided the length of your relationship with this particular prospect was relatively short-lived. If this phenomenon is an isolated incident that happens from time to time, I wouldn’t give your decision to pass a second thought. As a matter of fact, you may have done yourself a favor.
Chances are if a customer will readily look down the block to save a few bucks, they may never fully appreciate all you could do for them or what you “bring to the dance.” However, if you find that you continue to lose a significant number of jobs to the competition because of a lower price, I suggest you do some soul searching.
Here are some questions you should consider:
Did I take the time to listen and fully understand the level of quality, service and delivery the customer was looking for before I quoted the price?
Did I over-engineer the proposal—i.e. plan to use higher quality materials than the customer needed or include some other aspect of service that the customer never asked for?
Are my costs for the specified job excessive, either in cost of raw materials or labor?
Did you adequately explain the plan and process—all the things that you would be doing for the customer—in filling the order along with communicating the price?
Notice that not once did I entertain the possibility of lowering your gross profit margin. Once you are convinced your costs of goods sold are in line with the industry average for your geographic area, hold firm on the prices you need to charge to be profitable and remain in business.
Even if all things are equal, people will buy from people who they like, trust, and find it convenient to do business with, and rarely are things equal. Smart businesses make sure all things are not equal.
One final observation… If a customer approaches you saying, “I can get the same stuff down the block cheaper,” ask yourself why they are still in front of you, three to five minutes later, asking for a lower price. Most likely, the truth is they really want to buy from you because of something you can provide that they cannot get elsewhere. Establish a value for what sets you apart from the competition and convert your higher price as a reason why they should buy from you because it is exactly what they were looking for.
—Vince DiCecco, Your Personal Business Trainer