Price-cutting competitors are like rust on a steel tool: as soon as youclean it off, it starts forming again. And, just like insidious oxidation,price-cutters can’t be ignored. If you don’t pay attention, they’ll erode yourcompany’s business. One way to respond to price competition is to meet or beatit at the lowball game. Unfortunately, there always seems to be somebodywilling to go even lower and your bottom line suffers as a result. Is there anyway you can respond to this unrelenting competition? Two automotive shop ownershave found alternative solutions.
One way is to diversify so that you can afford to pass up a job or twowithout worrying about its impact on your bottom line. Pete Bennett, owner ofCoachCraft, Inc., in Lexington, Kentucky, provides as many automotive restylingservices as he can think of in a successful effort to build revenue and fullyuse his shop’s capacity. “As long as we’re promoting quality and being fairabout pricing, I don’t worry too much about our competitors,” Bennett says.Volume is important, but not at the expense of quality. According to Bennett,who believes better work supports higher prices. “The quality speaks foritself.”
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Bennett not only tries to attract many different types of work, he alsomaintains a balance between retail customers and dealer subcontracts. Heestimates that his business is split just about equally between the two. Retailjobs generate a higher profit margin, of course, but the dealer businessprovides volume to maintain capacity utilization. Because he has both, Bennettcan afford to maintain his prices, even to dealers.
Lee Muntean, owner of AAA Convertible & Sun Roofs in Costa Mesa,California, has adopted exactly the opposite strategy for beating thecompetition. He targets a niche market and does one thing—but he does it very,very well. This approach provides a strong floor under his prices.
His pricing for dealers and general repair shops isn’t driven by a need tobeat the competition, but there is another factor he takes into account: thedealer’s margin. When it comes to pricing work subcontracted to him bybody shops and garages, he’s careful to allow them to make a profit withoutundercutting his retail price. ”One thing I don’t want them to do is givethe jobs away. That hurts me,” Muntean says. In the ideal situation, thegarage’s customer would pay the same if he came directly to Muntean and viceversa.
Any business owner or manager will tell you there is always somebody willingto undercut your price. One way to respond is to make a knee-jerk price cut ofyour own. As these two successful business owners demonstrate, though, that’snot necessarily the only way to build your business.
Dave Donelson distills the experiencesof hundreds of entrepreneurs into practical advice for small business managersand owners in the Dynamic Manager’s Guides, a seriesof how-to books, ebooks, audio books, and podcasts. Topics in the DynamicManager series include marketing and advertising, sales techniques, hiring,firing, and motivating personnel, financial management, and businessstrategy.
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