The Price of Constant Price Reduction: Strategies for Small Businesses
As I grew up, I couldn’t help but notice the prevalent strategy of reducing prices to boost sales, from boutiques to beverage retailers and wholesalers. It struck me even harder when I encountered a billboard advertisement by a popular beverage company on the streets of Accra, with a catchy caption: “1 cedi p3,” followed by a similar TV ad, proclaiming “ya tete so.” This left me pondering some crucial questions:
- What happens to smaller businesses that can’t continually slash prices to keep up with the competition?
- How long can we keep reducing prices until companies are practically giving their products or services away for free?
- Is this not more of a threat to businesses than an advantage, as competitors engage in a race to the bottom?
So, how do we navigate this pricing dilemma and maintain the health of our businesses?
Creating a Monopoly in Your Niche
One way to secure your pricing strategy is by establishing a monopoly in your field of operation. Ask yourself: Who truly needs what I offer? How can my offering be perceived as more useful and helpful than the usual consumer sentiment of “let me try another option today”? Focusing on problem-solving rather than solely profit-making builds trust with your customers.
Prioritizing Consistency and Cultivating Culture
Consistency is key. Craft a compelling narrative that aligns with your offerings and consistently communicates the core objectives of your business. This fosters a culture that involves your customers, making them feel valued and part of a solution-oriented community. When the emphasis is on addressing specific needs and desires, pricing becomes less of an issue.
Not Selling to Everyone
A common mistake is trying to market your business to everybody. Consider this: How noticeable would a bucket of Azar Paint be in the vast ocean compared to a swimming pool? You don’t have to sell to everyone. Once you’ve clarified your target audience, focus on satisfying the specific needs of those within that niche. Selling to the smallest viable group willing to subscribe is often more secure than attempting to cater to everyone’s unspecified desires.
Case Study: The UT Bank Revolution
Take, for instance, the story of Mr. Kofi Amoabeng, co-founder of UT Bank, which faced its downfall during the 2017 Ghana Banking Crisis. He introduced the groundbreaking concept of “24-hour Loans.” This notion was initially considered implausible, given that traditional bank loan processing could take up to a year. He remained steadfast, offering loans with lower interest rates and shorter durations, catering to traders who required quick cash to complete transactions and repay within three months. Mortgage-seeking clients weren’t a fit for this model, yet it effectively addressed an overlooked market segment, as they were typically deemed risky by other banks. His pioneering idea has since been adopted by numerous financial institutions, revolutionizing the lending landscape.
In our blog post, we’ll delve deeper into these strategies, examining the pitfalls of constant price reduction and offering valuable insights for small businesses seeking to thrive in a competitive market.