If I have lower prices and higher quality, why does my competition continue sell more than me? If you are asking this question, you need to analyze each of these four components to get to the right answer.
First, a lower price: a lower price is not a guarantee of greater sales. In fact, from a client perspective, only 25% of companies believe that price is a primary reason for choosing to abandon or change vendors (Alcaide, 2010). This means that clients practice, within a said threshold, the aphorism to “go with what you know,” meaning that they are often uncomfortable switching to a new product or service despite the pricing benefit. If that is the situation, your efforts may be vain and onerous, and even if you sell a product or service based on variable costs, the problem you are facing is much older.
Second, the highest quality: conceptually, the quality of a product or service is its aptitude for use (Escudero, 2013). Therefore, you may be incorrectly perceiving your offering’s quality from the aptitude of your own use rather than your customer’s or target market’s use. Have you wondered whether you are competing in the right segment and with the right product or service? Or, paraphrasing Seth Godin, are you looking for customers for your products instead of satisfying their true needs? Don’t forget that quality should not only be present in what you sell, but also in how you sell it.
Third, the competition; in today’s digital world, it’s a mistake to think that the big fish eats the little one. The truth is that, in the era of real time, the fast fish beats the slow one. While it is true that verifying your peers’ competitive position – financial support, know-how, differentiators, etc. – is a necessary task, the most important step is to verify the relevance of their processes. If these are efficient and satisfactory to the appropriate internal decision-makers, this will result in an adequate customer experience. Otherwise, your client will find another offering because of the treatment he receives. 74% of customers leave because of perceived poor treatment (Alcaide, 2010).
Fourth, sell more; selling more does not guarantee sustainability, because you can easily sell more at a lower price and send your profitability to the abyss. It is useless to grow sales and achieve greater market share if you start to have liquidity and solvency problems. For example, if you reduce price by 10% and increase sales volume by 20%, it seems like a positive step, right? However, if in that example the contribution margin is 30%, do you realize that it is necessary to increase sales volume by 50% to keep the monetary margin in balance? Otherwise, although the sales volume will be +20%, the monetary margin will be -20%. Keep track of elasticity in the balance of sales movement indicators (MVE) (Baños, 2011).
In summary, your analysis should be in 360° without leaving any detail to chance. Make sure you aren’t emulating the coyote and the roadrunner by pursuing the wrong objective with inappropriate and expensive means. Implementing proper price management is similar to having top surfing skills. That is, price management has to be generating a permanent balance between commercial, financial, technical and processes within the framework of current regulations.
Prices are not just numbers. They are the variable that has the greatest impact on company sustainability. Did you know that the improvement generated by pricing is almost 5 times more effective than that generated by fixed costs? (Baker, et.all. 2010). It is not a minor issue; therefore, you should give it the qualitative importance it deserves.