Selling on Price is a Death Wish for Your Business

Larson Juhl, one of the premier framing manufacturers in the US, has brought me in a few times to speak to their Retailers on marketing and Social Media. Lee Mendenhal, their Director of Key Accounts, has a keen interest in helping his account base understand how to harness the powers of Social Media to grow their small businesses. Last time we spoke Lee asked my opinion of Groupon; one of his customers wrote a fabulous blog wondering if it was ruining retail.

I’m all for saving money when I can, but I have intentionally steered my life in business away from price driven sectors because you have to work so much harder to make money when your margins are small. If the only way you can differentiate your product or service from others is based on price, you’re at the mercy of anyone who can afford to do it for less; allowing competition with deeper pockets the choice to do it for less just to hang you out to dry . I’ve watched so many volume driven businesses fail, especially in this last recession, because they needed crazy large volume due to their low margins.

Why on earth a small frame shop would want to put themselves in the position of competing with Michael’s is beyond me, because they can’t spend the ad dollars to beat the big guy, and they can only do so many jobs. If the low margin jobs take up most of their time they will be busier making less money.

A friend of mine owns a sign shop that’s been in Scranton for 75 years; this is not your rinky dink little business – they do the huge, how-the-heck-do-they-dothat kind of sign. Years ago they did a big volume in National chains that had businesses in the area; the work was steady but the terms were dreadful and the margins lower than their standard work. The owner bravely decided that she didn’t want any part of those National chains – at one point over 50% of their business was dependent on it. 5 years down the road they are more profitable then ever depending on the signs that actually make them a decent margin.

The moral of the story is this: Coupons are good for getting people in your doors for the first time. If they’ve never bought one of your tchotchkes and a coupon will get them in, GREAT. If you need to sell HUNDREDS of a certain item to break even, Coupon-away. But if your volume is limited because you can only handle X amount of work due to manpower, space limitations etc., base your marketing method on quality, customer service – ANYTHING but price. Leave Groupon to the guys in the other category – the guys who want to work twice as hard for their dollars.