THE TALE OF THE SHIP REPAIRMAN
I want to share some thoughts on a topic that although not new, I’ve heard expressed more frequently of late…” Should we lower our prices to compete”.
Many service-based professionals, including real estate agents, architects, restaurants, and fitness providers, are feeling the pressure to lower their fees or prices to attract more business. Despite having years of training and experience, the fear of losing clients to competitors who offer lower prices creates doubt in their minds.
However, competing on price can lead to attracting primarily price-sensitive customers who are more likely to switch to a competitor offering a slightly lower price, leading to a constant churn of clients. Additionally, a business that constantly offers the lowest prices may have less room for innovation and improvement, making it difficult to invest in research and development, staff training, or technological advancements.
Price-based competition can also make it challenging to differentiate your business from competitors, making your brand interchangeable with others in the eyes of customers, which can lead to them switching to a cheaper alternative without hesitation. Lower prices can also create unrealistic expectations for customers, leading to unsustainable profitability.
To avoid this downward spiral and protect their brand and profitability, service businesses should emphasize the unique value they bring to clients, educate customers about the value they receive by choosing their services over cheaper alternatives, and implement tiered pricing to cater to various customer segments. Investing in building long-term relationships with clients based on trust, reliability, and a track record of delivering quality is also crucial.
Remember, while price can be a factor in the decision-making process, it should not be the sole focus of your business strategy. By delivering value and maintaining a strong brand, you can avoid the erosion of your brand and the continual lowering of fees, ultimately fostering a sustainable and profitable service business.
The next time you need a reminder of why you and your business are worth the fees/prices you charge remember ‘The Tale of the Ship Repairman’.
A large ship's engine malfunctioned and the owners hired various 'professional' mechanics to fix it. However, none of them were able to figure out how to repair the engine. Finally, they called an experienced man who had been fixing ships since he was young. He arrived with a big bag of tools and immediately began inspecting the engine meticulously from top to bottom.
Two of the ship's owners watched as the man worked, hoping that he would know what to do. After examining the engine, the old man pulled out a small hammer from his bag and gently tapped something. The engine instantly roared to life. The man carefully put his hammer away and the engine was fixed.
A week later, the owners received a bill of $10,000 from the old man. They were surprised and confused because he hardly did anything. So they wrote to the man, asking for an itemized invoice.
The man sent them an invoice that read:
Tapping with a hammer………………….. $2.00
Knowing where to tap…………………….. $9,998.00
The story illustrates that while observed effort is important, experience and knowing where to direct that effort is what makes the difference. A good reminder that you have earned your worth!