Being in a price competitive market can mean you end up working for nothing in the hope you can make a profit down the track. This is a high risk and low return strategy that is destined to end badly.
Most people think marketing is about getting more leads. In reality, marketing is about educating your market so that you can not only get more leads, but eliminate price competition and build your profits.
The first thing we need to understand is what creates price competition?
Price competition is really a lack of product differentiation, meaning the customer cannot see any real difference, between what you and your competitor are offering. Understanding how to differentiate your product and communicate your value is critical if you want to improve your profitability.
Price competition is created by 2 factors…
- An alternative choice of supply.
- A fully Informed Buyer.
Both of these have been made even easier with the internet giving buyers the ability to easily do their research from their phone, sometimes even right in front of you!
So how do you combat this situation?
You need to be the one educating the buyer and helping them understand the difference between your offering and the rest of the market. You need to educate them on the value of your offering, not the price. When we look at value, it is usually a combination of these 3 things…
- Speed of delivery
In most cases, we can only choose 2. So what is it for your product?
The next thing to consider, is how to communicate your message. This usually takes time and/or money and where a marketing investment is required. The issue is marketing is usually seen as an expense, so the astute business owner will try to minimise it.
So how do you turn your marketing expense into an investment?
Simple, by expecting a return. This requires you to measure the amount of money or time you invest in marketing and looking at the return.
That means tracking a lead from “Click” to purchase where actual dollars are hitting your bank account. This will give you the ability to measure the Acquisition Cost for buying new customers.
The second number that is critical to know is your customers’ LifeTime Value. That is, how much money will a customer spend in their lifetime, or more importantly, how much profit they will generate?
Once you know these two numbers, you can make better decisions on which marketing channels to use, and how much you’re willing to invest to build your client base.
Imagine if you knew that for every dollar you spend on marketing, you’d get two dollars in return! Rather than minimising it, you would try to maximize your investment.
The only thing that would stop you investing, would be your capacity to deliver… and that’s a great problem to have… because now you can start increasing your prices and improve your profitability.
Remember, in business… It’s not about turnover… It;s about left over. Having a profitable business means working less and making more.
- Calculate your Acquisition Costs.
- Calculate your customer LifeTime Value.
- Establish your capacity to take on new business.
- Get to investing…
If you need some help in getting this information together, please reach out to one of our team who will gladly help you.