Many small brands/businesses struggle to compete with giant corporates to make profits, but as the giants have deeper pockets, they can easily sustain price cuts or dwindling economies. It is not valid for small businesses as they cannot survive hostile situations for an extended period. Instead of fighting in terms of price, small businesses can cater to other demographics that are less price sensitive.
Small businesses can have premium pricing based on the benefits they provide, other than the product.
1. Price based on services (Links to an external site.) e.g., hospitality, human connection, handmade goods, etc.
How many times have you seen a bored employee who is paid minimum wages, helping a customer without a smile on their face in a grocery chain? And have you ever thought why a small, charming mom and pop store radiates warmth?
A small store can generate more revenue if it can charge a premium for these intangible benefits. A store that proudly sells handmade goods to loyal customers can charge for the uniqueness of the product.
2. Since small businesses cannot handle price war (Links to an external site.) for a longer time compared to the big corporates, the strategy is futile, but they can reduce prices for long term customers to reward them for their loyalty. Also, we know that customer retention is highly profitable in the long run.
3. Small businesses can also highlight their features deemed as high-end by the customers, by reflecting these ideas in their décor, training employees, and in promotion activities. Although Publix is a chain, they charge more as compared to Target and Walmart and can do that because their store is always clean, and employees are helpful. A similar strategy can be employed by a small business trying to charge a premium for their brands.
4. Merely increasing the price cannot justify the quality of the product, so a prudent business owner should be able to help customers find value in the product proposition. With the power of social media, it is easy to get bad reviews if a customer feels cheated. If a small burger restaurant wants to be in business the same as McDonald’s, it should provide good quality food, maintain the same taste, and should reinforce in the customer’s mind that their food is fresh and nutritious. This way, they can justify 6 dollars for a burger.
As it is difficult to reach the market leader position for a target market with a smaller marketing budget and no margin for service failure, small businesses have to be cautious about premium branding. The customer may be forgiving but not forgetting, and it takes a long to build a reputation.