Word to the Wise: Matching a Competitor’s Price
If you continue to lose a decent number of jobs to the competition because of a lower price, here are some questions to consider.
It might seem like you’re losing more business to competitors who directly undercut your prices just to get the job. For some, your initial instinct is to match the competitor’s price and win the order. You might be asking yourself if this is an OK practice or if you should let the customer go.
It’s not a bad decision to let a customer walk, provided the length of your relationship with this particular prospect was relatively short-lived. If this phenomenon is an isolated incident that happens from time to time, don’t give your decision to pass a second thought. You may have even done yourself a favor.
Chances are, if a customer readily looks down the block to save a few bucks, they may never fully appreciate all you could do for them or what you bring to the table. However, if you find that you continue to lose a significant number of jobs to the competition because of a lower price, I suggest you do some soul searching.
Here are some questions to consider:
- Did I take the time to listen and fully understand the level of quality, service, and delivery the customer was looking for before I quoted the price?
- Did I over-engineer the proposal (e.g., plan to use higher quality materials than the customers needed or include some other aspect of service the customer never asked for)?
- Are my costs for the specified job excessive, either in the cost of raw materials or labor?
- Did I adequately explain the plan and process in filling the order along with communicating the price?
Notice that not once did I entertain the possibility of lowering your gross profit margin. Once you are convinced your costs of goods sold are in line with the industry average for your geographic area, hold firm on the prices you need to charge to be profitable and remain in business.
Even if all things are equal, people will buy from people they like, trust, and with whom it is convenient to do business, and rarely are these thing equal. Smart companies make sure all services aren’t equal.
If a customer approaches you saying “I can get the same stuff for cheaper from so and so,” ask yourself why they are still in front of you. Most likely, they really want to buy from you because of something you can provide that others cannot. Establish a value for what sets you apart from the others, and convert your higher price as a reason why they should buy from you.