There is an old saying I have heard some veteran sales people use when talking about succeeding in the face of stiff competition. It goes “Differentiate with value, or die with price”.
There is a lot of truth in those seven words. As is often the case, it is easier to say the words than execute on the idea.
Differentiate on value means you can compete on just about anything other than price. It could be service, location, convenience, packaging, delivery, product, information, etc, etc.
The competition in the decorated apparel or embroidery industry is very stiff. Thread Logic competes on a national level and there are over 26,000 embroidery businesses nationwide. That does not include the thousands of promotional product distributors we compete with as well. Needless to say, there is a lot of competition and it would be easy to fall into the “price trap”.
I made a very conscience decision when I started Thread Logic that our business model would not be driven by us being the “low price leader”. There are two fundamental reasons for that idea. The first is the idea that there will always be someone out there willing to embroider a polo shirt for less. And secondly, it is true that customers that come to you for price leave you for price.
The kind of business model we wanted to build was one with solid long term relationships with our customers. That was the only way we were going to sustain our business and be successful. Offering a competitive price is part of the value we bring, but we do not lead with our pricing.
Die with Price
I know a guy who is a victim of die with price. His business is in a very competitive industry and one that sees a lot of price competition between suppliers. But there are opportunities to differentiate with value.
He fell into this trap. He was always trying to offer the lowest possible price. He was constantly worried he would lose a sale over price. Consequently his margins and therefore profit suffered.
The funny part is he knew it. He knew he wasn’t charging enough. He often said to me he needed to fix his pricing. He knew it was not a sustainable business model. But he just couldn’t bring himself to change his practice. He was too worried about losing a customer if he charged more.
The fear of losing a customer was greater than the fear of losing his business.
Well, it finally caught up with him. His business declared bankruptcy early this year. He was forced to close his business and go to work for someone else. His company no longer exists because he couldn’t find it in himself to raise his prices in order to stay in business.
There is a great lesson here for other small business owners. If you want your business to not only thrive but also survive in these turbulent times, you have to deliver value. Competing on price alone will be the deathblow to your business.