I don’t think I’m going out on a limb to assume you have not randomly set your prices. I’m going to assume you’ve based your prices on your cost of doing business plus enough profit to make it worth your while to get out of bed and come to work every day.
And because your prices are based on something real, it is unrealistic to expect you to drastically reduce them. So what do you do when a competitor starts advertising that they’ll do what you do for considerably less money? Do you shout, “this means war!” and set your prices lower than theirs?
Price wars lower value for everyone
Price wars between competitors hurt everyone because they destroy the perceived value of what you do. If you think you can compete by cutting prices for a short time until you win the pricing battle, remember that customers will feel cheated if you return to your previous levels. For example, you know that $1 burger on the fast-food value menu? Remember when it was $1.49? I’ll bet you’d feel ripped off if the price of that same burger went back up to $1.49 tomorrow, even though you paid that much for it a few years ago. You now perceive that it’s worth only $1. Customers will apply that same thought process to your business. If you cut your prices by 20 percent, your service will be viewed as being worth 20 percent less, and that will be hard to overcome in the future.
Avoid being pulled into a price war
We hear from readers on this topic frequently, and understand how frustrating it is. One day a PRO is working away, happily serving satisfied customers, paying the staff, maintaining the equipment, paying the bills and making a little bit of money. The next day, a previously satisfied customer informs you that Joe Blow’s Portable Restrooms just blew into town and offered service at half of what you’re charging. What do you do?
If you panic and announce you’ll beat anybody’s price, you risk becoming a non-profit company and your labor will become volunteer hours. Ask yourself how long you’d want to keep that up?
It’s a hard piece of advice to follow when you see your customers migrating to the competition, but don’t panic and start slashing prices. Give the aggressor time to shoot himself (or herself) in the foot. If you can’t make it on razor thin margins, neither can they. Be there to pick up the pieces (and customers) when they go out of business.
That doesn’t mean you should sit back and do nothing. When the competition undercuts your prices, consider taking the following steps:
Don’t overreact. Maybe the competition enacted a temporary special offer because they are in desperate need of cash. Wait and watch to see if it’s going to last.
Don’t aid the enemy. If suddenly you are getting a barrage of phone calls asking price-only questions, suspect your territory is being “scouted” and stop giving out pricing information on the phone without details regarding a specific job.
Offer more. Align your business with a complementary service like a wedding planner or event planner or offer additional services yourself, like portable fencing. “One-stop shopping” has value to people.
Be the expert. Place ads touting your customer service or offer your expertise to the media. Stress that you offer handicapped accessible restrooms, keep all your restrooms sparkling clean and that your restrooms smell great. Explain how your company disposes of waste in a legal, sanitary way. You are not saying the competition doesn’t do these things, but adding value to your services for people who appreciate clean restrooms and earth-friendly practices. The competition is only talking about price, so people who care about price alone are the only ones they are reaching.
Ramp up customer service and tout it. Don’t cut back on service or buy lower-quality supplies to save a few pennies during this crisis. Rather, stress to customers how you provide impeccable service and use only the highest quality cleaning, deodorizing and paper products.
Cut prices judiciously. If you feel you have to cut prices, do it with discretion and make it easily reversible. An example would be limited-time offers, coupons or special pricing for new customers only.
Build loyalty. Make switching to the competition undesirable by starting a loyalty program. If customers are in the process of building up points toward getting something free or at a reduced price they are less likely to leave and lose what they’ve earned.
Add value. Find something your business can add to stand out in the marketplace. Be the most unique business in the category.
Build your brand. Push your brand name in the market. Brand name businesses stand stronger in a price war. If your name is the first one to pop into someone’s head, they’ll call you first and then you can sell your service rather than compete with the competition’s lowball price.
Get Creative
There are other creative ways to fight price battles. We heard of one company that fought back against an aggressive price-slashing competitor by creating a variety of alternate business names and listing them all in the Yellow Pages. Why? When the phone rang five times in a row asking about prices, they could be sure the customer calling cared about price and price alone, and they could subsequently decide not to do business with that customer. Or, if the customer called the five different “companies” and got the same price quote five times, they might be convinced that the price quoted was the going rate for that area and not quibble about paying it. It seems like a lot of effort, but it was worth it to this particular company.
Remember, by cutting prices tit-for-tat in a price war you are either acknowledging that your pricing was unfair to begin with or that you are willing to work for free. Instead, find a competitive advantage aside from price and promote it. A steakhouse does not add a dollar menu just because the fast-food place across the street does. It touts higher quality offerings and service. Differentiate yourself and focus your marketing promotions on those advantages. It could make you a stronger, more profitable company in the long run.
If you’ve found yourself caught in a price war, tell us what happened and how you responded. Email your price war battle stories to editor@promonthly.com.
