August 21, 2014

Small Business Advice

Small businesses must compete on value, not price

Jerry Osteryoung | 3/25/2013

Big box stores like Wal-Mart, Home Depot and Lowe’s are able to buy goods for a much lower cost than almost any small business, which gives them a competitive advantage on price.

And, even though small businesses will never be able to match their larger rivals on price, they can — and should — compete very effectively on value.

When I talk about “value,” what I mean is all the things that bring some kind of benefit or advantage to a business’ customers. Clearly, knowing what these things are will help you articulate a sales strategy.

For example, if you have a generous return policy or delivery program, these advantages should be presented to any customer who wants you to compete on price.

I think so many small businesses fail to recognize that being locally owned and operated has value to their customers. Big box stores employ local staff, but all of the profit is swept out to their corporate offices. They do not make a real commitment to the local community in the same way Tallahassee-based companies do.

Money spent at small, local businesses stays in the community. Local firms are the ones that keep chambers of commerce afloat and do so much to ensure the vibrancy of their communities.

The key here is reminding your customers that you are local. You cannot simply assume they already know. Customers are often surprised to find out a firm is local, so it is important that you remind them frequently of the contributions you are making in the community.

Now, you are always going to have certain customers who demand the lowest price. However, these customers are loyal to nothing but price. If you meet the low price, you will have their business only until they find a lower price elsewhere.

Instead of chasing the lowest price, develop customers who are loyal to you because you have provided them the value they need. Just remember that it is up to you to spell out this value.

Now go out and make sure that you are clearly explaining the value you offer on a daily basis. The better you can communicate this, the more likely you are to develop customers who are loyal to you in spite of the lower price offered by competition.

You can do this!

Other small business advice columns from Dr. Osteryoung are here. Note: Articles older than 30 days require registration (it's quick and free).

Jerry Osteryoung is a consultant to businesses - he has directly assisted over 3,000 firms. He is the Jim Moran Professor of Entrepreneurship (Emeritus) and Professor of Finance (Emeritus) at Florida State University. He was the founding Executive Director of The Jim Moran Institute and served in that position from 1995 through 2008. His newest book co-authored with Tim O'Brien, "If You Have Employees, You Really Need This Book," is an Amazon.com bestseller. He can be reached by e-mail at jerry.osteryoung@gmail.com.

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