NFIB

Use Added Value to Boost Profitability When You're in Direct Competition
04/ 02/ 2002


When you're in direct competition with other businesses that provide almost exactly the same product or service you do, it's always a temptation to attempt increasing sales by lowering your price. It's true that price will always be a consideration, but remember that many customers also will be attracted to added value. In today's Workshop, Jeffrey Moses explains.

If you own a pizza shop and a new pizzeria opens right down the street, you have four choices when it comes to pricing: 1) do nothing, 2) lower your prices to become more competitive, 3) improve what you offer customers and continue charging the same amount, 4)improve what you offer customers and increase your prices. If you choose the latter, and accomplish the goal, you'll continue to maintain almost all of your profit margin.

How can you improve what you offer customers? The ways to do so are too numerous to mention. Add another layer of cheese. Offer three free toppings instead of one. Give away free breadsticks. Make a deal with the video store down the street to go in on a "dinner and a movie" combo (both at discounts, of course).

To justify raising prices, consider improving the ambience (atmosphere) of your restaurant. Customers know they won't get a cut-rate price when there's a musician or small musical group playing in the evening, when the wine and beer list is outstanding, or when large tossed salads come standard with dinner. Turn the lights down a little. Offer high-quality silverware and thick cloth napkins. Improve your wine list. Customers go to such restaurants because they're fun, different, and of a higher quality.

Any added-value features won't do much good unless you advertise what you're offering. This can be done on a big sign in front of your store, in newspaper or radio ads, or through your sales people (in the case of larger organizations with in-house sales staff).

Attracting customers in this way is called "differentiating" your product from those of your competitors. The essence is this: if all things are perceived as being equal between two products, customers will choose the one that's cheapest. But if one of the products is perceived as having added-value in some way that's important to the customer, he or she may be willing to pay extra to purchase it. Since your costs on an item are usually fixed, any extra margin you make on each sale increases your overall profitability.

workshop.marketing.mon
01.24.00

Small Business Sound Off
Does this story hit home?  Share your story with us