Charging too little to beat the competition is not a good start-up business strategy
It is hard to compete on price when you are starting a new business. Instead, compete on customer service, quality and your unique selling proposition.
Michigan State University Product Center innovation counselors provide excellent assistance to entrepreneurs trying to resolve day-to-day issues. They help to guide them onto a path of success. One of the most frequent issues entrepreneurs face is charging too little for their products in an attempt to “beat the competition.” This strategy is not the right approach to take if you want your business to be successful.
Established businesses have strong relationships with suppliers. These relationships are built and refined over many years. For example, if you were to look at Wal-Mart’s success, you would notice that they have exclusive relationships with suppliers where the supplier will only produce a product specifically and exclusively for Wal-Mart. Wal-Mart will then purchase 100 million units of that product, thus receiving a very low cost supply. However, your new business does not have the relationship, nor the bargaining power to obtain low cost exclusive supplies.
Of course, you need to make a profit that you can use to pay for your business and living expenses. In order to achieve this, use your USP (unique selling proposition) to charge a more premium price for your product. Learn to recognize what your businesses USP is. How is your business unique? What makes you different than the competition? It is an important business question to consider when making pricing decisions.
By simply trying to meet and beat the competition price, you may just find yourself struggling to stay afloat. Michigan State University Extension recommends that a better long-term strategy could be charging a market rate.