Michael Stone has written a useful column about the challenges of “focusing on price” — where he seeks to educate his clients on changing their mindset from worrying about clients seeking the lowest price; to showing them how to convince (the right) clients to pay more for reliability, quality and getting what they really want.
I enjoyed that column as my business works on the painful challenge of convincing our market that indeed lower price can correlate with greater value — showing that the marketing story in business isn’t always as clear-cut as it may seem at first sight.
If the paragraphs above seem contradictory, that is because they reflect two sides of the coin about perceptions, relationships, and expectations in the marketplace.
Michael Stone describes the fight within a competitive market where there are perhaps too many players, each trying to win the job — and where low-ball businesses try the seemingly easiest way to succeed — undercutting the competition on price.
There the challenge is to build trust — and the best way to do that is of course to achieve a positive reputation before your sales call, augmented with skillful presentation and communications skills to bring the potential client to your side.
Our situation with Ontario Construction News is somewhat different. We’re an ‘upstart’ seeking to break a monopoly in place for many decades — at least since the 1980s, and possibly earlier. Under Ontario’s old Construction Lien Act, contractors were required to publish a Certificate of Substantial Performance (CSP) when their projects were completed, as part of the process to get owners to release the 10 per cent holdback under the Act.
The wording requiring the advertisement to appear in a “construction trade newspaper” was so specific that you could only place this ad in one publication, creating a mandatory legal monopoly to the benefit of a private publishing business. Needless to say, these ad have been a cash cow for the publication, with estimated monthly revenues (with no selling required) of $500,000 or so. (We can tell exactly how many of these notice ads must be placed, because they are recorded on a public database.)
The new Ontario Construction Act retains all the requirement for a “construction trade newspaper” but changes one point — the publication can be digital, rather than printed. The publication quality standards are still pretty high — you can’t just put together a schlocky website and hope to get the business, but since we have three decades of experience publishing construction news in Ontario, we can easily charge 50 per cent less than the competition and be truly profitable with just 10 per cent market share.
But the going isn’t easy. Customers who try our service are quite happy and will return, but it is not so easy to find the clients and get them to know about us, and then, when they do, trust us with their first order. Some are probably afraid that there is something “wrong” with with the offer. We’re building our market share, but slowly — and this shows the power of inertia and existing relationships in creating a protective shield around your business if you get it right.
The point here is that if you’ve earned a great reputation through referrals, recommendations and repeat clients, you should not worry about price — you probably don’t want these low-ball clients anyways, and there should be no need to “price match” to stave off competitors.
If you are an upstart or new player in a competitive market, if you are tempted to compete on price, you should be aware this is probably going to be a losing game for you. Whatever business you win will be either marginal or unprofitable. Your challenge is to build your reputation, relationships and trust and then price won’t be the primary situation.
If you need proof of the reasoning for my previous comment, you can see it from our own rare example where a significantly lower price should be a rational marketing message, but is hardly the rapid road to success. If we can offer a service legitimately and profitably at a price half that of the competition, and clients aren’t flocking to do business with us, why should you think that a slightly lower price in a price-competitive marketplace will magically solve your marketing and business development problems?