As the economy continues its precarious path forward, consumers and business customers maintain a price-conscious attitude.
Many large companies have made the decision to use price reductions, sales and rebates to increase (or maintain) unit sales. This tends to cause a great deal of grief to small business owners who are forced to decide how to respond.
In most cases, it would be a mistake to go head to head on pricing with larger competitors with seemingly unlimited financial resources. Making matters worse is their use of tactics, like matching competitor low prices to ensure that no business will underprice them. No matter how low you try to go, they’ll beat you. Even if the particulars of your business allow you to win the pricing game, the overall cost to your business is greater than the value of the customer that didn’t get away.
Once you are branded as the cheap guy, it’s hard to charge premium, high-margin prices.
How to fight back
There are multiple strategies that can be implemented to maintain your sales – or even increase them – without capitulating to the lower prices offered by larger competitors. Use your size to your advantage and consider these strategies:
Find allies in small suppliers
Larger, national competitors typically have centralized purchasing departments with firm-wide purchasing goals and guidelines. They buy in large quantities and tend to work with suppliers that can meet a number of stringent requirements and can accept onerous payment terms. Just ask any small clothing designer that has negotiated with a department store purchasing manager to hear firsthand just how challenging the process can be.
Many smaller suppliers with high quality or unique products simply can’t or don’t want to sell to large businesses. These are your natural allies. You can differentiate your inventory with these high value and hard-to-get items. Selling goods that aren’t widely available is a great way to generate sales without lowering your prices. The customers that seek these out will not be as price sensitive as buyers seeking commoditized goods.
Your customers are your community – cater to them
Most of the large retail chains take into account local market tastes and preferences when determining the inventory mix for each store. Their decisions are based primarily on historical and current sales. But you can take it one step further. If you are a member of the community where your business is located, you can use your genuine understanding of the local market to intimately know what is in demand. A small business can also go “hyper local” catering to different constituencies within a local community.
I recently spoke to the owner of a local food store whose meat department was able to maintain sales and elevated prices despite having to compete with four large supermarkets within a small radius. This was due to two reasons: first, the meat department maintained a butcher from the local community that has a high percentage of immigrants from the same country. These immigrants prefer certain cuts of meat that simply aren’t available (or even heard of in some cases) at the super markets. Second, the supermarkets are close, but inaccessible to pedestrians. Most people in this market don’t own cars.
