How to avoid devaluing your business

Kurt Greatrex
Kurt Greatrex

In the midst of escalating expenses and decreased consumer spend, it would be unwise to rely on constant undercutting and margin reductions as a means to secure business. Dekko Window Systems sales director, Kurt Greatrex, discusses why we need to avoid a ‘race to the bottom’…

‘Race to the bottom’ – it’s a phrase we’ve been hearing increasingly over the past few years in the context of everything from post-Brexit trading to responses to the refugee crisis.

Many aspects of our economics, and therefore our lives, seem to be hurtling southwards as the big existential crises – war, climate change, hunger, poverty – impact on our thinking.

Last autumn, a decision by the then Chancellor Kwasi Kwarteng to cut corporation tax in order to boost growth was deemed as a race to the bottom. Experts warned that tax cuts were no magic bullets to increase growth – but Kwarteng went ahead anyway, spooked the markets, and Liz Truss’s short spell as Prime Minister ended in disaster.

The fenestration industry has seen similar price-slides, with manufacturers and installers jostling to offer ever-attractive cuts and gain market share, to the point that businesses are prepared to sustain losses in the hope that when better times return, customers will stick with them – and accept the inevitable price rises.

But it doesn’t take a financial genius to work out that customers aren’t always so predictable. Everyone likes a bargain, but we tend to know that price-cutting has its consequences. ‘Buy cheap, buy twice’ is an old adage that we all understand. And if something sounds too good to be true – like a bargain price – then it usually is.

There is much more to a successful business than its ability to simply cut prices. Yes, such an action may draw customers in the short-term, but when they start to see compromises on quality, resulting in substandard goods, job losses, cuts to other areas of the business and a subsequent decline in reputation, they often vote with their feet.

So how does our industry remain competitive without resorting to the race to the bottom? At Dekko, we believe that innovation is the way to our customers’ hearts. If you offer them something they can’t refuse, or obtain elsewhere, you’re in pole position to make a sale. And in our industry, it’s good design that’s stylish, durable and innovative, which will persuade customers to invest, even ahead of price considerations.

How else might we avoid the ‘pile it high, sell it cheap’ mentality?

A solid pricing plan

How do you decide what your price should be? First, it’s important to understand the value of what you sell.

The emphasis on value is often missed as business owners rush to be price-competitive. Customers are quite rightly suspicious of knock-down prices, believing that what they buy will be of poor quality.

They may or may not be right – nevertheless, the perception remains. Establishing value means making your product a must-have – it needn’t be unique, but it must have enough allure to make it valuable for the customer.

Costs, turnover and profit

Every business, large or small, has overheads to consider, whether it be raw materials, labour, property, electricity, etc. You need to factor all these in before you decide on your price, and therefore your margin.

Once you know your costs you can easily create sales and revenue targets that will help your business to grow.

Knowing your market

This requires you to be a bit of a trend-spotter. One day your product might be in vogue, then the following day it isn’t and you need to know why. It could be seasonal, it could be geographical, it could be shifting tastes. Whatever it is, it’s vital to understand shifts in your market and alter your price accordingly.

Understanding your competitors’ strategy

This is a tricky one. If you’re selling at a price that is higher than your competitors, it’s almost inevitable that your customers will ask questions.

If and when they do, you need to be able to point to other factors such as better quality, more effective customer service, a new feature – something that will elevate your product and justify the price increase. A business will be able to justify a price increase and survive any negative perceptions of a price drop if the brand is strong, reliable and innovative.

These are just a few ways of getting to grips with product pricing without becoming involved in a dangerous race to the bottom.

At Dekko, we pride ourselves on constant product development, honing our offerings to match ever-changing consumer trends and advances in technology. This, we believe, keeps our customers loyal, especially in uncertain times.

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