New business owners often believe that the best way to gain new customers is simply to offer prices lower than the competition.
That approach is one of the main reasons most new businesses fail in only a few years. They chronically underbid in an effort to get work, instead of using other means. Even long-standing businesses sometimes start playing this game when things get slow.
Although this should never be a first-response strategy, it’s not always a bad idea. If done in a highly targeted fashion, it can help bring in new work in a sustainable way.
For example, your firm does mostly switchgear work, but you have a small team that does communications cabling. You could contact the customers for whom you’ve done switchgear work and offer them a discount on communications cabling work at the same facility.
But it’s probably best not to offer them a discount on switchgear work. Based on the price you give them, they may feel you overcharged them previously. That may cause bad feelings. They may even start shopping around for a deal better than the one you were pitching, and you’ll lose them entirely.
You don’t want to give the same customer different prices on different days for the same kind of work.
When you do offer a promotion such as (in this case) a discount on cabling work, make sure it’s a limited-time offer and there’s a ceiling to the total dollar value discounted.
So you could say that if the customer is considering any communications work and is awarding the contract in the next 90 days, you’ll do an estimate and give them a 10 percent discount up to $10,000.
None of this discounting actually differentiates you from the competition. Price is only one factor in the buying decision. If you started making a list of other factors, you’d find some cues as to how to differentiate yourself from the competition.
Let’s suppose your firm performs industrial electrical maintenance work. You want to get the contract to do it all at a specific plant. Should you talk to them about how much money they can save on maintenance costs?
Or would the plant engineer be more concerned about ensuring the safety and reliability of the plant? How would the plant engineer know whether to choose you over a competing firm?
Well, maybe your competition does not have what you’ve got:
• Two Level II certified thermographers.
• Four ultrasonics technicians who are qualified to identify motor bearing problems months ahead of the actual failure.
• Six electricians with more than 100 hours each of formal training in the testing and maintenance of circuit breakers, busbar, and transformers. And more than five years each of field experience in these areas.
• Two testing technicians, each of which has several industry-recognized certifications and more than 10 years of field experience.
• A maintenance engineer with 15 years of experience in similar plants.
If you have a team like this and your competitor just has “maintenance electricians,” but offers a discount, who is going to get the work?
To differentiate yourself from the competition, assess what your firm has that provides the extra value you can charge a premium for. If you don’t see anything in house, send people to training and hire people with the expertise and certifications for the market you’re pursuing.
Make that differentiation your main selling point. It’s your value proposition. To get more work from existing customers or to gain new customers, you could combine that differentiation with some strategic discounting.
Just don’t make the mistake of relying on discounting to grow or sustain your business. Use a solid differentiation strategy to accomplish those goals.