What do you do when there’s open bidding on a job and you’re not the lowest bid—even when you cut your margin to the nibs? The typical small electrical shop will lower its price to get the work. This response will suffice if everything goes right.
But if you run into one unforeseen problem, you’re likely to take a loss on that job. Sell a few jobs like that, and you either go out of business or run up huge personal credit card debts and the go out of business. If you let your competitor take these jobs, then they go out of business and you don’t. The problem is, of course, you need to take some jobs so you can stay in business.
If everyone is chasing the low bid (the classic race to the bottom “strategy”), can you afford to wait until they’ve knocked each other out? Probably not.
You can employ several strategies and tactics to turn the price competition contest on its head. Here are some to consider:
- Think hard about your marketing plan. Marketing isn’t selling, so don’t confuse the two. Marketing is mostly how you position your company in the marketplace; you identify your distinctive competence and clearly communicate that to all potential and existing customers.
- Exploit your distinctive competence. Rather than lower your price, increase the perceived value. Except for commodities, price isn’t the primary buying consideration for most buyers. If it were, everybody would be driving cheap cars. Yet, look at how many luxury cars and other expensive vehicles you see on the road. Why is your company worth the extra money? If you can articulate that clearly, you will command a higher price. Not for every possible customer, but for enough of the marketplace that you make fat margins instead of shamefully thin ones.
- Talk with your competitors. If you see a competitor that does good work and has a good reputation, meet with its principals to discuss the marketplace. Make it clear you’re not out to do any illegal “price fixing” but you want to avoid killing each other in the marketplace. Agree to discuss cost-saving ideas, technical issues, and anything else that affects offering excellent service at a fair price.
- See if there’s a trade association relevant to the work you offer. For example, if your firm performs electrical testing, you’d want to seek out an association that’s all about electrical testing, perhaps by attending one of their conferences and meeting those involved.
- Talk with your pseudo-competitors. When Joe Flybynight puts severe price pressure on your market, have a talk with Joe. Take him to lunch, and ask him how he factors in mobilization costs. If he gives you a deer in the headlights look, you know he doesn’t know what he’s doing. He’ll be out of business soon. And maybe you can hire Joe to do what he’s actually good at doing. Ask him about training, NEC compliance, etc. Get a feel for his attitude toward quality and safety without directly using those words. If his attitude seems slippery, it may well be that Joe Flybynight has victims instead of customers. Contact companies likely to have done business with Joe, and offer to perform a free and confidential electrical inspection. If Joe did the work, the customers will draw their own conclusions. If Joe didn’t do the work, you have probably created an opportunity for yourself.
- Talk with your customers. Some firms win over a customer, and for a while get regular work. Then the work stops. Often, this is because a competitor has approached the client’s management with some kind of price-list that defies reality. Don’t make constant sales pitches, but do consistently communicate the value you bring. You want to avoid being seen as a commodity that can be bought at the lowest price. You can, for example, produce detailed reports that identify the problems you found in a given installation (whether new or you’re doing maintenance on it now), what the potential cost was if left unchecked, and what measures you took to correct those.
- Examine your processes. How can you become more efficient? For example, you have a fleet of service vehicles, and there’s no rhyme or reason to how they are stocked or laid out. This situation is a big time-waster. Address it thoroughly, and you will find yourself much more competitive in a tight-price market. What else can you address to make it faster, easier, and more efficient for your people to do their work?
Price competition isn’t always bad. Rather than passively responding by lower your prices while your costs remain the same, look for ways to drive your costs down without cutting corners (as in the service van example). But also be aware that sometimes low-price competitors do not understand the business end of electrical contracting. Never respond to that situation by tossing good business practices out and joining the race to the bottom.