Are you too Focused on Price?

I was chatting with a friend the other day who was complaining that, when bidding for work, he was only successful in gaining contracts when he was the lowest bidder.  He was annoyed that the quality of his work was not being recognised and that his customers sole factor in determining who to contract with appeared to be price.

On digging a bit deeper, I found that this “people only want the cheapest” attitude was his personal feeling and he had not carried out any research to confirm that his thoughts matched his market environment.  I also discovered that he was using simple cost-plus pricing to determine his quotes.

Professor Malcolm McDonald of Oxford University, an extremely well-respected expert in marketing planning and strategy, has examined what makes customers buy and has shown, in study after study, that only about 10% of consumers in any market make their purchasing decision on price alone.  Indeed, many consumers can even be considered as price inelastic i.e. price is not the determinant when they decide to contract.

I advised my friend that, at the very least, some market research was needed to confirm his feelings about his situation. I felt that he also needed to examine his business’s marketing mix and to segment his customer base.  I also suggested that he look beyond cost-plus pricing in his competitive tendering market and to use a pricing strategy that combined the profit margin in his bid with the percentage chance of his bid being successful.

Marketing professionals often refer to the marketing mix as the four ‘P’s’.  For service orientated businesses this can be extended by the addition of another three ‘P’s’.  The four ‘P’s’ are product, promotion, price and place.  For service industries people, process and physical evidence can be added.  It does not seem sensible to base your marketing decisions or quotations on one element in a mix of up to seven variables.

By examining the market, by looking at competitor’s offers and by carrying out market mapping, competitive advantages will likely be achieved.  By segmenting the customer base, a marketing mix can be developed which attracts consumers in target groups critical to a business’s success.

If your business is reliant on personal assumptions as to the needs and wants of your customers, you could be missing out on those vital competitive advantages which would turn your business from one which is surviving and into one which is thriving.

Philmus Consulting Ltd, using recognised marketing planning and marketing strategy techniques, can help your business create systems which guide you to success.

Philmus Consulting Ltd are also experts in consumer law compliance and can help your business develop systems to prevent costly compliance issues.