A long time ago, I used to think that the true way to success is to outwit and outmaneuver competition. Truth be told, I am a very competitive person by nature and I hate losing to competition. And I’m sure that a part of you feels the same way deep down inside, it’s called the “competitive spirit”.
In fact I would wager that a lot of people who want to venture into business have a very healthy dose of competitiveness and most of the time think of starting a business as similar to going to war. You start to buy and read books such as the “art of war” and numerous business strategy books to beat your opponent(s). You have in your heads that to be in business, you must focus on “Killing Competition”.
Through the years of teaching business, I’ve encountered a lot of start-up businesses and even growing businesses that do not focus on what is really important, and that is learning how to make profits regardless of competition.
A lot of businesses that I’ve encountered will typically price their products lower than competition so that they can “steal” the clients from them. They feel that the more clients they are able to take from other businesses, the more successful they become.
For Example: You just opened a water refilling station just a few blocks away from an existing one who sells their 5 gallon jug at P50 each, you decide that for the opening promo you are going to price your 5 gallon jug at P45 each so that the customers of the existing business will switch to buying from you.
If you are starting to think this way, let me say right now that this is faulty thinking. Why? Because:
1.) Your competition will most probably match or even price their products lower than yours and a price war may start. A price war is never good for business, not for you, not for your competitor. If you go down this path I guarantee, no one will win.
2.) Competition will ALWAYS be there, even if you manage to destroy one or two today, 10 more will spring up tomorrow. It’s a losing battle that you will never win. Plus, this is the sure fire way to attract more enemies and possibly bankrupt you.
3.) You are not acting in your business’ best interest because your profitability suffers and you are running your business not like a merchant but like a warrior.
So instead of thinking like a warrior let me give you now a few insights that will help you think more like a merchant whether you are just starting a business or have been in business for a while.
First, let’s re-focus you, repeat after me: “Businessmen are merchants, not warriors”. Business is not about going to war with your competitors, it’s about being profitable first with your customers.
There are many methods for pricing your products and services to be profitable with customers which I discuss fully in my Business seminars, but for this article I want to focus on a very important philosophy of profitability and that is to start learning how to
“Price for Profit, never for war”.
Here’s a real life example on how I did that. A couple of years ago I was invited to speak on “How to Start and Manage a Food Cart”. At first, the organizers wanted me to price it at P500 / seat since their other speakers (talking about other topics such as catering and baking) was offering that price. I said no to P500 and ended up negotiating the price to P2,500 / seat, 5 times higher than what the other seminars were going for. Though the organizers were reluctant at first, they finally said okay. You should have seen the poster. My seminar was the only one that was priced at P2,500 and the rest of the seminars were all P500. It stuck out like a sore thumb.
When the seminar day came, there were three seminars going on at the same time, mine and 2 others. The other 2 seminars were jam packed with about 60 participants each, mine had only 30 participants. Here’s the math:
Seminar A had 60 participants x P500 = P30,000.
Seminar B had 60 participants x P500 = P30,000
Sub Total = P60,000
My seminar had 30 participants x P2,500 = P75,000.
Even if you add up the sales of my 2 “competitors” I still produced P15,000 more. Another way to look at it is that even if I only had 12 participants, I would have made the same amount compared to seminar a or b’s 60 participants, in my example above I only had half of what they got but I won over them in profits by an astounding 150%.
So you see, as businessmen, if you focus too much on increasing your customers by lowering your price, it is not at all as profitable as getting a smaller number of customers at a much better price. I never try to steal the customers away from my competition by lowering my price, instead I focus on giving more value to my customers with the price that they pay, regardless of what competition does.
Knowing this is the most important first step to becoming a merchant and a true Businessperson.
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Great article Mark. I completely agree with everything you mentioned in this article. Price your products/service for profit and not because you just want to follow the other competitors. There will always be a price point where you can be healthy and profitable. If the price is too low then it just means you have to get out of that industry already (it’s too saturated).
Great minds think alike Lehboy! Ha ha ha
Hi Mark,
I love your post!
I’d like to ask your permission if I could repost this to my site please?
Thanks,
JoTan
Sure thing, spread the wisdom my friend.
God is with you mark…
My mind & heart is opened you are absolutely correct! aha:)
I have a Internet shop here in pampanga and I did that when the first weeks of my operation, (lowering my price) One year after few new internet shops open near my location and one did the same strategy i made. Aw! it hurts… Now i’ve learned my lesson now focus on the profits but make sure you give your customer a quality service…
Thanks men…
Glad you understand this basic but powerful concept in business. May you create wealth and prosper Leo.
You have brought up a very excellent points , thankyou for the post.
Agree! 🙂
I agree with you Sir Mark. Quality service and products over “underpriced ones.”