The traditional, low-cost leader strategy is a battle between companies to discover which will come out as the lowest cost manufacturer of products or services. The company that wins the contest can decide how high or low its profit margins will be, set prices low enough to drive competitors out of the market, and keep new entrants out of the market.
While this may sound like an excellent position to be in, it can be a difficult one to attain. A company with a cost leadership strategy sells at high volumes to a broad market at low prices. Companies achieve this selling-on-price model by making significant investments in production and distribution operations, implementing ever-tightening controls on production costs, and building a supply chain willing to sell at deeply discounted rates.
As a small business owner, you may covet the leadership position, but recognize it’s most likely not the best fit for your operation. If you can’t sell your products on price, then how will you be successful?
The lowest price isn’t always the answer
You may think that everyone is just looking for the best price they can find. But here are some recent consumer buying trends you might want to consider:
● Only about one-third of consumers buy solely on price. The rest are also interested in other benefits of your products.
● Fifty-three percent of customers say quality is the No.1 factor in their buying decisions as compared to 38% percent who rate price as the compelling reason.
It’s entirely possible that by selling on price, you could be turning off customers who are more interested in quality. Small businesses will be better served to compete on differentiation and value rather than selling on price to win these customers over.
Know your niche
Cost leaders sell to everyone; that’s how they can reach the economies of scale they need to drive down prices. Highly-segmented markets that require brand loyalty, quality, and value over price are not likely to attract enough customers to make such a model work.
That’s where smaller-sized businesses are particularly suited to play and win in the value-selling game. Your success lies in your ability to highly satisfy a targeted market—firms or consumers—who are willing to pay more for receiving more value.
Take time to identify your ideal target market and what drives them to pay a higher price for their products and services.
Sell the value
An essential thing a business can do is deeply understand what needs your products satisfy. Nearly all buying decisions happen at an emotional level. Do you know what your customers’ emotional needs are that would cause them to buy your product? What do they desire? What pain do they want to avoid? What will make them happier or more productive?
Once you’ve identified the emotional drivers, determine the attributes of your products that will meet those needs. Sharpen your pencil, get your leadership team together, and dig deep. Many times, it’s subtle things that differentiate your company and your products from your competitors.
Build a better product
You have identified your target market, those things your customers truly value, and why they would choose your product. Once you are selling your MVP (minimum viable product), your efforts should focus on driving additional value through updates, new features, upgraded packaging, and other enhancements your customers express interest in buying.
By developing and integrating these features, you give customers more of what they want, and you can sell at a higher price. According to marketing experts, upsells and add-ons will increase your revenues significantly. Statistics have found that the top 4% of your customers will pay 16 times more for added value to your products.
Value is more than your product
Today’s consumers have more choices than ever. Technology creates products that leap-frog each other with incredible speed. Product differentiation is challenging to sustain. Your company has to mean more to your customers than merely the products you sell.
You can avoid selling on price by focusing on…
1) “Outcomes” rather than features—how your products help customers achieve their desired experiences
2) Your company—its history, mission, vision, and values
3) Stories—your customer success stories, case studies, and testimonials
Stick with it for the long-haul
Value-based selling isn’t an overnight wonder. It takes discipline, focus, and conviction that proving the value of your products will be more impactful than simply placing a lower price tag on them.
In the meantime, you can emulate the low-cost leaders by reducing your operating costs. Cost-effective contract labor solutions give you an experienced workforce without having to hire expensive in-house labor. When your costs are lower, and you’re getting a value-based price for your products, your margins will skyrocket.
Add value with outsourcing
Local, non-profit contract labor solutions, like those provided by Ohio Valley Goodwill, can bring additional value to your business by increasing lead times, reducing overhead costs, and improving processes.
Unlike some outsourcing firms, Ohio Valley Goodwill doesn’t work with for-profit middlemen. Our only bottom line is the value we create for local businesses and job-seekers in our community! We are a non-profit partner that businesses in Cincinnati, Northern Kentucky, and Southern Indiana have trusted for decades. Best of all, businesses that partner with Ohio Valley Goodwill for contract labor solutions become a part of our social mission to provide meaningful employment opportunities to individuals with disabilities and veterans.
To learn more about contract labor solutions provided by Ohio Valley Goodwill’s Industrial Services Division, please contact us today. We’re happy to provide a free quote and a tour of our Cincinnati-based facilities!