I see many businesses that focus on the price of their product or service – even advertising themselves as “the cheapest”. And I can understand that for some commodity products (although that is not always the case – see below) but selling on price alone carries a high level of risk.
Why? Well, research has shown that there are only 3 reasons someone will buy from you – price, product and the customer experience. It is easy for competitors to undercut you on price – look at what happened when Aldi and Lidl came into the UK supermarket arena. It is also fairly easy for competitors to copy your product or service – again look at the products Aldi and Lidl sell, they all seem similar to products you will find in other supermarkets.
Focusing on price alone means that you always have to watch what your competitors do, and you have to respond when they have a price cut. This just leads to price wars, ever decreasing margins and, eventually, business closure.
But you can justify charging a higher price than your competitors if your product and/or the customer experience you offer are superior to those of your competitors. Aldi and Lidl took market share from every major food retailer apart from Marks & Spencer (M&S). M&S are one of the most expensive food retailers in the UK, but they also offer the best customer experience – and they saw their share of the market increase.
So there are 2 reasons to justify higher prices. First you can ensure that your product is of a higher quality that those offered by your competitors. This could mean additional functionality, longer lasting etc. If you want to focus on product quality make sure that you understand your target market and what they want your product to do before you make any changes.
That still leaves the risk though that competitors could copy your products – and add more functionality, so you will need to continually research and innovate.
Making sure you offer the best possible customer experience is the most effective way to justify higher prices for 2 reasons:
First, the customer experience makes up 70% of the buying decision. This means that any improvements you make to the customer experience will have a much bigger impact than cutting prices or improving product quality.
Second, it is really hard for competitors to copy or improve the customer experience, so you will gain a head start that you can maintain as long as you continue to improve.
As long as your product or service is of sufficient quality, providing a great customer experience will mean that your customers will perceive that you offer greater value than your competitors even though you are more expensive. That is key – most customers want to understand what value they get, not what price they pay – price is only a factor in helping them understand the value.
You do have to adjust your marketing and product/service descriptions though if you are more expensive than competitors – the customer needs to understand why you are different from competitors. If you cannot clearly explain what you differently, how that makes a difference, and why your prospective client should pay more, they are not going to pay more. Commanding a higher price means being different in way that makes a difference. The difference that you make is what creates the perception of value.
According to a recent study 86% of buyers will pay more for a better customer experience. And by 2022, customer experience will overtake price and product as the key brand differentiator.
So, how do you provide a great customer experience? Well, there are 6 elements to a great customer experience. They apply to every time a customer is in contact with your business and are:
Each of these elements are built into the advice you will receive through BuBul. Work through the recommendations you get, implementing them wherever possible and you will see a big improvement in your customer experience and business results.
If you have an accountant, they should be your first stop for business advice. If you don’t have an accountant or they can’t help, BuBul has a wide range of experts available. For more business advice why not follow BuBul on LinkedIn?