The Value of Planning Vs the Cost of Price Cutting in marketing
One of the first questions I always ask a potential client is ‘what is your value proposition?’ Often, it takes a while to tease out the real answer because instead of focusing on driving business development by leveraging the things they do well, they are distracted by their competitors’ tactics…..which in this economic climate often means price cutting and squeezing margins. While it’s always important to understand the competitive landscape and be aware of what your main competitors are up to, the most effective long term route to gaining and retaining customers is to offer them genuine value. That could mean service levels that they cannot find anywhere else, technical support, market intelligence even loyalty-linked discounts…..whatever it is, it needs to be aligned to what you do well, not just to the competition’s tactics.
All too often, I have seen companies panic as their market share is threatened by a slow down in their sector and aggressive price cutting from their competition. These are both threats to a business that need to be handled in a measured way by weighing up the merits of changing strategy against the potential gains…..and the potential risk.
I hear lots of demoralised company directors tell me that, in the end, their customers buying decisions ‘all come down to price’ and as a result they embark on a price war with their competitors which is simply unsustainable. While some tactical discounting can pay dividends, it’s important to remember that a company that doesn’t have viable profit margins doesn’t have a viable business. To offer price cuts, therefore, you have to be able to reduce costs and if that compromises the quality that sits at the heart of your value proposition, then it’s not a viable option either. The essential element to maintaining a viable pricing model is to communicate effectively with your customer base so that they understand what they’re paying for – invisible value is not value to the customer, it is simply added cost. However, if they understand that there are benefits associated with paying a little extra, many, even in this financial climate, will make a value- rather than cost-driven purchasing decision.
Others struggling to maintain profitability from their traditional core business seek to diversify, which, in principle, is a smart strategy. However, it’s important to remember that most successful companies have built their success on an expertise in what they do. Diversification doesn’t mean moving into anything you think will make money, it means leveraging your strengths to build on your core proposition and it requires effective business and marketing planning to ensure that your new venture is scalable without detriment to your main activities.
The most recent economic growth figures were more positive than expected, but there is still a long way to go before we reach pre-recession levels of commercial activity. Now, more than ever, it’s sound commercial planning and targeted marketing than will win the day over knee jerk tactics.