Customers love a good deal, but as one business owner points out, competing on price instead of value could actually be a recipe for disaster.
Business owners may believe providing goods and services at a low price point makes them more competitive.
However, according to Steve Rider, the founder of Mybottleshop, it should not always be about offering the lowest price around.
Instead, he believes in offering a price for what he believes his products are really worth.
“We try and set the price in the market for the simple reason that the product isn't available anywhere else,” Steve says on the My Business Podcast.
“We have to create that demand.”
Steve finds himself facing off against supermarket chains and their lower prices that have profit margins of between 4 and 6 per cent, which isn’t enough to keep his business operating.
“I can't run my business on 6 per cent, I need 20 per cent margin to stay in business,” he explains.
“For every dollar in sales I end up with 20 cents in my pocket, and out of that I've got to pay wages, I've got rent expenses, I've got all the operational expenses of the business.”
Mybottleshop’s business model relies quite heavily on imports, so the prices partly reflect the scarcity of the products.
“If you look at our website, you'll see a lot of incredible products that are just not available to Australians,” explains Steve.
“That means we jump on a plane and we go over there, and we negotiate with the suppliers there, try and get the quantities.”
Even with negotiations, the products Steve chases after can sometimes be in extremely low supply, with multiple potential buyers.
As a result, Steve has to offset the cost of importing and ensuring that he secures the product over others, as well as trying to make a profit.
“What we do is we try and find the sweet spot if we can, and if we can fit the product in there, we do,” he says.
“Other times we just say, ‘You know what? We think that product's a winner based on our experience’; whatever it takes to buy it at that price, we'll set the price and we'll build our margin up.”
If Steve really believes in the quality of a product, he will purchase it at any cost and then raise the price to what he thinks reflects the quality of the product.
“Irrespective of [what] we might think: ‘It's a bit high, maybe, we'll not sure if that one will fly’, but if we've done our job properly and we've picked the right product, it will sell at that price point,” he says.
Steve is not alone in suggesting businesses compete on value rather than price, with Norgay HR Consulting's Clare Long speaking at length on the subject of customer value.
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