Poor choice: selling on price

Dominik Loncar, CYBF Entrepreneur-in-Residence, dloncar@cybf.ca

We all like a deal; who doesn’t? So we assume (incorrectly), if we start a business by offering a deal people will come by the thousands. What we forget, is that we like a deal on things that have established value. The key word is “established value.” You might buy an Armani suit that’s on sale because of its high perceived value. You won’t necessarily buy a Benny Fitz suit (sale or otherwise) because you have no idea of the quality or who he is.

The companies that can sell on price are large companies who have worked their way up by providing value first, or have large amounts of money to capitalize on economies of scale (i.e. the Wal-Mart’s of the world). Micro businesses starting-up, usually, do not have either.

If someone asked you why they should buy from you and your only response is “because I’m the cheapest,” then the only discussion we can have is on price – and you’re always looking over your shoulder to see who else is offering a cheaper price – and someone usually is.

“But wait,” you say, “I will offer the best price, the best quality and the best service.” No matter how hard you try, people equate lowest price with cheapest quality, or cheapest service or both.

If on the other hand, you had twenty reasons why I should buy from you that include quality, service, customer aftercare etc. but not price, then you will be able to handle objections more readily. The customer will know that if they buy from you, they are getting their monies worth. In effect you are establishing long-term value. In tough or good times your business would have a better chance of survival.

Obviously, if you’re starting a dollar store or importing goods from China, then price would be the key selling point – but we all know what happens to quality. In the short run, selling on quality/service over price may be more painful but the payoff in the long run is more sustainable. So by all means look for a deal by getting your next coat on sale, just don’t start a business based on that.