During a recent discussion, an industry supplier, citing concerns about the rise in prices for copper and other metals, was anticipating a price increase of his own. His bigger concern: His competitors may not follow suit. It’s the type of challenge facing many refueling providers, who are faced with price fluctuations on a daily basis.
We all formulate a competitive price based on the cost to produce a product or service — overhead, taxes, utilities, shipping, labor — with the target an adequate profit margin. But global demand on raw goods is changing the marketplace and how we react.
Consider snow removal trucks, where the cost of raw materials and the fuel to deliver those materials are at industry highs. Or airline tickets, where volatile fuel prices and fierce competition cause a pricing nightmare for carriers. In either case (and many others), it can be difficult to recoup rising costs in a highly competitive arena.
So the question becomes, How can some competitors offer a similar product for significantly less? Are you doing something wrong? Often, it’s more likely you’re doing everything right and the competition is on the defensive.
Companies selling deeply discounted products and services do so from a position of weakness, not strength. Perhaps they are experiencing a cash flow problem, requiring them to generate cash quickly. But it doesn’t pay the bills in the long term; nor does it provide money to support and retain customers and grow the business. On the contrary, rate-cutters only worsen their financial plight and cut themselves right out of competition. After you offer 50 percent off, how do you get a customer to pay full price again?
You may lose a sale or two initially by sticking to your price, but customers will return. They’ll need quality service and parts, and the competition won’t have the manpower or the facilities to meet the demand. Or the competition won’t have the inventory, or online purchasing, or 24/7 availability. In time, the competition’s people will be looking to work for a different company that can afford to pay them a deserving wage. Holding steady on price is the only way to consistently and continually deliver value over the long haul.