Did you know that the biggest reason most startups fail is due to cash flow issues, with 82% reporting poor cash flow management skills and 77% admitting they didn’t price their offerings properly? Setting prices can absolutely be a challenge, but you cannot have a financially healthy business if you don’t figure this part out. I’ve written before about the power of setting the right pricing strategy and some guidance about how to set prices, but I want to cover a different angle today: price matching. You’ve probably seen retail stores do this.
Let’s say Home Goods Store A sells a vintage lamp for $79, but Home Goods Store B has the same lamp marked at $73. If Store A honors price matching, a customer could bring in proof of Store B’s lower price, and Store A would sell their lamp for $73 as well. This can be a smart strategy to get dollars that would otherwise go to your competitors, but it’s not quite as simple as that. Here are a couple of key factors to keep in mind if you’re considering honoring price matching.
Know Your Numbers
The biggest driving force behind any business’ pricing strategy is profitability. You need to make sure your margins are high enough to comfortably cover all your expenses and then make a profit. Some companies are able to keep costs low and prices high, creating large margins that give them plenty of room for experimentation. These are the brands that can get away with offering regular discounts and, of course, price matching. They know how low they can go in price in order to still make a profit, so they can feel confident about matching lower prices.
So, do you know your numbers? If you have more overhead than your nearest competitor and slim margins as it is, odds are good you can’t afford to drop your prices. Price matching alone won’t bring enough customers through the door to justify you eroding your margins further and getting into a tough cash flow spot. Make sure you know where you stand in terms of margins and profitability, so you know whether you have room to play with price matching at all.
Decide On Your Differentiators
Every company has a handful of differentiators that set them apart from competitors. A store that sells organic essential oils and body products may intentionally over-index on quality, knowing their clientele will pay high prices for products that are sourced ethically and made purely. If you have similar differentiators, there’s no need to even consider price matching. You’re not trying to be the lowest cost shop in town; you’re trying to be the highest in quality.
However, let’s say you offer online certifications for practitioners in the wellness field. Your target customer is a working parent who is busy and has a low income, which they’re hoping to raise by becoming certified in new areas of practice. They want convenience and low-cost options, and that’s almost entirely what they base their decisions on.
If another online certification provider offers their aromatherapy course for $50 less than you do, for example, you may lose out on customers. In this scenario, you’d absolutely want to match the other vendor’s price if you can afford to. Doing so may just help you draw competitors’ customers to you and establish a reputation as the most cost-effective, convenient option out there… which is exactly your goal.
Once you have confidence in your numbers and know the differentiators you’re building your business around, it should be clear whether price matching is a good idea for you to try. I’d love to hear your own pricing story; contact me here.
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