Wednesday, July 20th, 2016
Too many businesses are price takers, not price makers. That means they are willing to lower prices to capture market share or to sign up a marquee customer.
Despite intense competition in business, one can win without destroying or even harming the competitor. Smart competitors don’t try to beat their adversaries; they avoid direct competitors and instead maximize profits.
In today’s hypercompetitive marketplace, major customers exert enormous pressure to force suppliers to cut prices. Competitors, in an attempt to gain market share or market position, often succumb and thus destroy the profitability of whole markets. But, with careful thought and precise execution, managers can be price makers, not price takers.
How can we become a price maker?
We must provide a reason for the customer to do business with us and focus only on the market segments, defined by customer set or purchase situation, to which we can bring superior perceived value.
Indeed, the more different we are, the greater our opportunity to set our own price. A commodity is defined as “undifferentiated.” We must be different.
Keep it simple. Simple product lines and service offerings have proven the easiest to manage, and in the long run, the most profitable to offer. Base the price on the value the customer receives.
Summing-up: Providing real value to the customer requires courage. Choosing certain customers or purchase situations, and consciously walking away from others, requires a much higher degree of courage. Being different requires the most courage. Courage to overcome the fear of being different is in short supply, but is highly rewarded. The very difference will enable you to be a price maker, not a price taker.