Competing on value not price

One of the most frustrating aspects of running a small business is setting the right prices and sticking to them.

After a few art markets where customers pass you by in favor of cheap trinkets at the next booth, or after you lose another bid because your prospect found someone cheaper on Craigslist, you may be tempted to drop your prices, lower your rates, and try to compete on price.

Don’t do it.

Business veterans describe competing on price as a sucker’s game that puts you “at the mercy of your dumbest competitor.” You’re more likely to succeed if you compete on value instead. In this post, we’ll talk about adjusting your customer personas, and customer-service goals to do that, along with strategies for different types of businesses, from home-based solopreneurs to B2B agencies and consultants.

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Change your customers, not your pricing

Your business can’t exist without a base of customers who give you repeat business and referrals. If would-be customers are passing you over on price, you need new customers. Take a good look at your target audience. Are they extremely price-conscious? Customers who buy on price alone should not be your audience, for two reasons.

First – and I write this without judgment, because getting by when you’re broke is a job of its own – customers who only care about the lowest price don’t have money to spend with you. How can you to sell to, let alone upsell to, someone with no money to spend on your stuff, no matter how great it is? If you drop your prices, you may get a little more revenue in the short run, but from customers whose lifetime value to your business is very low.

[bctt tweet=”Customers who only care about the lowest price don’t have money to spend with you.” username=”hostgator”]

Second, price-focused customers are loyal to the lowest price, not to any particular store or service. Say you cut prices to beat the competition, figuring you can absorb the loss until you get a lot of these price-focused customers. Then your competitor drops prices lower (maybe they’re doing high-volume sales, maybe they’re dumb – it doesn’t matter). Now you’ve taken a loss on your sales and lost your customer base and you may not have enough cash to recover.

[bctt tweet=”Price-focused customers are loyal to the lowest price, not to any particular store or service.” username=”hostgator”]


Fine-tune your customer personas

For small online businesses and home-based business, it’s important to get out of the mindset that your friends are your only customers. We tend to hang around people like ourselves, so if all your pals are bootstrapping their own business or side hustle, they don’t have the money to spend with you, at least not yet.

If you’re a freelancer or run a B2B business, avoid the “whatever client comes along” treadmill. Market to clients who have the budget to hire you now and give you repeat business. Good advice I got from my freelance writing mentor Carol Tice was to set a minimum market-capitalization or venture-capital investment threshold for prospective B2B clients. This can help you avoid sinking time into one-off projects for small-budget clients so you can focus on finding clients that appreciate your value and will pay your rates.


Value-over-price goals

The most concise description of providing value I’ve seen comes from writer Neil Gaiman, who got it from Stephen King:

“People keep working in a freelance world… because their work is good, because they are easy to get along with and because they deliver the work on time.”

He goes on to say that two out of three is good enough – that you can be cranky if your work is good and on time, or that you can be late if you’re good and people like you. If you really want to win on value, though, aim to deliver all three. That way, if one area breaks down every now and then, you’ve got some wiggle room.

Let’s get a little more specific. Whatever your business, your value goals should include:

Building good customer relationships

Remembering birthdays, offering promo deals and preview sales, following up on purchases and asking for feedback are all ways to build lasting relationships.

Enhancing customers’ experience

Etsy encourages its sellers to package items beautifully and maybe add a small bonus item. This works surprisingly well, because it makes buyers feel special.

Saving your customers time

Rush shipping, gift-wrap and product tutorial videos help retailers save time for their customers. Agencies and freelancers can save time (and upsell their services) by offering market research, social media management, site hosting and maintenance, and other services to commercial clients.

Giving customers peace of mind

Make your refund or revision policies clear and fair. Answer questions and complaints quickly and professionally. Show your customers and clients that they can rely on you.

Staying ahead of the curve

Whatever business you’re in, offer your clientele new ideas, products, or ways to use existing services. If you sell shawls, keep up with color and fabric trends. If you sell white papers to businesses, offer to script video summaries they can post on their websites.

Making your customers look good

The ultimate value goal is to make your customers look so good that people will ask how they do it. One of my friends is a metalsmith who makes jewelry (when she’s not making swords). I will buy her work forever because every time I wear something she’s made, I get compliments and questions about where to buy. It’s a win-win. I feel great and I give out her business cards.

Maybe that presentation script you wrote earned your client raves at the trade show. Maybe your silk flower customer got hundreds of shares on her wedding-décor photos. Make your customers look great and they’ll be your best ambassadors.

That’s the one-size-fits all advice. Let’s get more specific.


When you sell the same physical goods as other merchants

For online B2C businesses that sell mass-market products, value comes from making your customers feel truly taken care of. Ways to differentiate your shop from other sellers include:

Help new customers make the most of their purchases. For example, nail wraps are popular now, with women who sell them from home and with customers who hate nail polish. A nail wrap seller can set herself apart by recommending the best styles for beginners and emailing how-to videos to customers immediately after their first purchase. If your customers like your product and know you’re helpful, they’ll come back.

Ask your existing customers what they really need, and create bundles to fill that need. Maybe you sell cosmetics and know people in a recreational dance or theater group who need stage makeup. Package the products they need most – lip color, lashes, and makeup remover – for their convenience. (You can also send tutorial videos or offer a demo.)


When you sell your own products to consumers

If you sell your own creations online, promote the quality differences between your goods and cheap alternatives. Maybe your products are made in the US with reclaimed materials or are simply more durable. If there’s a difference that will matter to your target audience, include that in your marketing and product descriptions.

Also, tell your story, because people who shop local or small want a sense of community. A good example is In.gredients, a grocery store in Austin. The grocery business is tough on a great day, and the Austin market includes a huge regional chain with a century of brand loyalty and Whole Foods, which is based here. In.gredients doesn’t compete on price or selection, though. It’s positioned itself as a “zero-waste micro grocer in East Austin committed to providing the community with local, seasonal, and sustainable food.” In Austin, there’s definitely a market for that customer experience.


When you sell services to other businesses

Everything we’ve covered so far applies to B2B services, freelancers, and agencies, especially the need to qualify your prospective customers. As your business grows, you should revise your qualifying criteria so you don’t get stuck at an earnings plateau.

For B2B professionals, add-on services can set you apart. For example, if you’re a CPA who offers tax preparation and advice, your clientele might gladly add a la carte bookkeeping and payroll services to save time and hassles.

For freelancers and consultants, reliability and quality will be your strongest selling points. Show your portfolio and client testimonials on your website, as Detroit wedding photographer DeAndre Glover does. If your site shows that you’re reliable and do good work, and you’re a pleasure to talk to when prospects contact you, you’ve hit the Neil Gaiman-Stephen King trifecta.

For agencies, your clients expect you to save your clients time and hassles while delivering reliable, high-quality work. To truly set your business apart, show your clients they can trust you to stay up to date on technologies and methods they don’t have time to learn. HMG Creative, a digital agency in Austin, provides conveniences like web hosting (as a HostGator reseller) and pushes hard to stay ahead of the tech and marketing-trend curve. This is how you make your clients look great, which is the best way to build loyalty and win referrals.

By now, you should have a list of ideas you can use to market your business on value, rather than playing the losing price-competition game. Want more inspiration and ideas? There’s a whole section of customer success stories on the HostGator blog.

Casey Kelly-Barton is an Austin-based freelance B2B content marketing writer. Her specialty areas include SMB marketing and growth, data security, IoT, and fraud prevention