a chessboard is set up with one piece out of place

This is going to sound crazy. If you want to grow your small business, then you should stop competing. Well, sort of. Specifically, you should stop competing on price.

There’s a dangerous game small businesses are often tempted to play. It’s called the “race to the bottom”, and unless you really want to operate your business on razor-thin margins you must avoid playing.

It’s a zero-sum game, where the only winner is maybe the consumer, and even then, only sort of. The customer may end up getting a better price, but they almost certainly do not get a better product or service at the end. Any business participating in the race to the bottom inevitably has to cut corners just to keep the lights on. So ultimately, even the customer ends up losing when they get an inferior product or service.

The only way for you to win this game is to not play it. Don’t commoditize yourself!

Are you playing the price game?

Fortunately, it’s not very difficult to determine whether or not you’re in a race to the bottom.

If you answered “yes” to any of the questions above, then it’s likely that you’ve either been tempted to compete on price or that you already are.

Now, I’ll admit that there are some industries where not playing the price game is going to be more difficult. Difficult, but not impossible. What’s that? You want some examples? Ok, here you go:

If you’re competing on price right now, you don’t have to! Seriously! Stop playing the game.

Yes. You will probably lose some prospects and customers.

And that’s okay. Actually, that’s probably a really good thing!

I want you to stop and think for a moment. Think of some of the most price-sensitive customers you’ve worked with in the past year.

I’m guessing that in many cases, the answer to those questions is “no”.

So, what are you supposed to do with those folks if you stop competing on price? Here’s a crazy new strategy to try: give them your competitor’s phone number. I’m serious. Give your most price-sensitive prospects and customers your competitor’s phone number.

Sounds crazy, right?! Well, maybe not. This could just be your new competitive advantage.

By sending your most price-sensitive prospects to your competitors, you accomplish at least two things:

  1. You’re forcing your competitor to decide whether or not to race to the bottom. Many of them will not turn down a job, which forces them to operate on thinner margins
  2. You let your competitors deal with the more price-sensitive and often more difficult customers

In case that sounds mean-spirited: it isn’t. It’s your job to run your business, not your competitor’s business. It’s their job to decide which customers they work with and how much to charge.

Compete on this instead

If you don’t compete on price, then you’ll need to differentiate yourself in the market some other way, right?

Next week we’ll go into this particular topic in much greater detail. For now, though, there are basically two other broad categories you should consider when differentiating your business in the marketplace: product and service.

To compete on product, you can either figure out new ways of packaging a product or you can deliver a significantly higher quality product. If you’re in a highly commoditized space, you will have to at least compete with high quality - it’s difficult to imagine repackaging the work an electrician needs to do…

If you’re in retail, however, you may be able to look at a combination of both quality and an enhanced product. For example: if you run a local hardware store, you may sell the exact same barbecues that your customers could also buy on Amazon, but you might offer free delivery and assembly. And you might charge more for that convenience.

In my opinion, differentiating on service is where small businesses have the biggest advantage. If you do the following, you’ll quite likely already have an advantage over many of your competitors:

Basic stuff, right? So basic, that we’d like to think that everyone is doing all of those things. Wrong! Do these fundamental things and you’ll already be out ahead of a lot of your competitors.

Show me the money!

In every issue, I try to write about things that could save you time or make you money. I think this issue could do both.

If you decide not to race to the bottom, if you compete on something other than price, then the following things are likely to happen:

Do it in the right order

If you’re going to get out of the race to the bottom, you’ll have to do this in the right order.

First, you’ve got to earn it. If you aren’t providing the best service and product, then you have to start here. Earn the right to charge more by operating with excellence. I’m pretty confident that you’re already doing this, though.

Next, you should do a bit of research to better understand the competitive landscape. Once you understand the range of pricing for your product and service in the market you typically serve, you can begin to experiment with where you’d like to fall in that range. I’d recommend aiming to be in the top 30-40% of the range, unless you’re aiming for the absolutely premium portion of the market, in which case you may want to land in the top 10%.

Last, you’ll make a plan for rolling out your new pricing. Making changes will be largely specific to your industry, but here are a few general guidelines.

A safe way to get started is to commit to stepping up your pricing over the course of a couple of years while simultaneously working really hard to ensure that your business is providing a stellar product and service.

As with most things in business, you’re probably not going to get this perfect the first time you do it. That’s not a good reason to put it off, though. Stop playing the game! It’s the only way to win.

To thriving,


PS: If you need help getting out of the race to the bottom, give me a call. Within 30 minutes we can identify some of the core problems you’re facing in pricing and competition and talk about a plan to change how you price your product or service in the market.