How To Handle Others Undercutting Price In Their Advertising
Business By CakeItGood Updated 3 Oct 2011 , 8:37pm by RebelsLGB
Looking for words of wisdom. We display in a mall for wedding vendors. The quantity of each vendor type is limited so that there won't be too much competition.
I make it a point to never advertise my pricing, but to schedule consultations. One of the other bakers has posted a per serving price in her booth, and states the "extras" that will increase her base price. Don't get me wrong, this lady is very nice and we have friendly conversations from time to time. However, there is absolutely no way that I would do cakes for so little.... AND the only way she can do this is because she is using cake mix straight out of the box, and I am pretty sure her frosting straight out of the can (taste/flavor leaves something to be desired). Her work is ok, we have different styles, but it is nice enough for the price she charges.
Trying to figure out how to convey in my booth the value of what my clients receive in comparison, without disrespecting her in the process. My cakes get rave reviews on flavor & design, I wanted to throw away her sample after tasting it. Thanks!
Also, I am pretty sure we have lost some "price shopper" quotes over A QUARTER per serving. A quarter.
Have thought about running a "limited time special" where i match her pricing by limiting flavors at that price (as she does), but why should I? My pricing is fair ($2/serving for basic buttercream?), my cakes are delicious, and taste wins hands down. Normally when people taste my cakes and THEN ask about price, they say "that's not bad at all", and I get orders from those that appreciate the quality and value.
Yes, definitely highly the positives. I advertise that all cakes are made from scratch, "no cake mixes, no bucket icing." It does work.
Also in some of my advertising, I give 2 doz free cupcakes if a wedding cake is booked within a certain time frame. The cost to add on the cupcakes is practically zero, since I'm making batter for the cakes. But brides, especially the price shoppers love it.
I wouldn't worry too much if I were you. I'm going to guess that her end price is the same or perhaps even higher than yours. She probably hits them on the "extras".
My stated per serving price is about the highest in my area but then I'm the only true scratch baker who works in fondant, ganache undercoat, sugarpaste flowers, stencil work, etc. My price includes the use of the cake stand (I live in a small rural area where I know everyone and don't need to take a deposit on the stand to insure its return), delivery within a 15 mile radius, and until recently cake cutting (now I charge extra for that), I also include a tasting for the bride and three others (no one else even does that)
When my customers shop around they find that the other bakers either don't provide cake stands or don't deliver or if they do they charge extra so that the final price is comparable or even higher than mine.
Rather than engage in a price war, I would make sure you have a visible notice that your cakes are made from scratch with the finest/freshest ingredients, etc. and the your cakes are custom. No doubt there are some people who will only be driven by price...and they will go to your competition because it's either her are the grocery store or their Aunt Matilda and a box of Betty Crocker!
Stand by the quality of your product to deliver value. You are your only competition and if the other lady continues to under price herself, she'll be out of business soon enough.
Always use the word "custom" and "Quality" ingredients.
Don't advertise price matching because that automatically presents the assumption that you are higher. People soon realize you get what you pay for. I have lost a couple of clients due to pricing but they did come back!
If you are confident in your cakes flavor and design, don't fret.
In addition to the from scratch thing, do you offer a more "all-inclusive" price package than she does? (she has a "starting at" price, but that doesn't mean an "actual" price).
I am also one of the highest in my area, but my price includes a lot more than my competitors.
Whenever I quote a price per slice I also emphasize, and that INCLUDES blah, blah, blah blah.
Then I advise them to make sure they check on all those extras when price shopping, because those little things can add up.
Educating your customers as to why you're better is your best advertising tool.
Did I read correctly? Her price is only .25 cents lower per serving than your cakes?
If that's the case I wouldn't worry too much.
You only charge $2 per serving? I'm new at this, but isnt' that extremely low to start with? Just trying to get a reference frame. If you're supplying scratch cakes for that little, I wouldn't think you'd lose too much business--that's a bargain anyway! (I think....)
You mentioned that you throw away her sample? Does that imply that you offer up samples to ??
If so, let your cakes speak for themselves. No need to throw dirt or imply that her cake is lesser.
There will always be people that shop for price before anything else. Let her have those customers . . as they are usually the biggest headache of your life, anyway.
There will also be people that want the best and care little about paying a little extra if it means quality. These are the customers I am after. These are the clients I want.
If it means closing my doors in 6 months because I find out there is not a big enough market for high quality cakes from scratch, at a slightly higher price . .then so be it. But, I will not take a loss in my pricing, nor will I sway in my beliefs. Quality will always be number one. Fresh, good ingredients.
There will always be people that shop for price before anything else. Let her have those customers . . as they are usually the biggest headache of your life, anyway.
There will also be people that want the best and care little about paying a little extra if it means quality. These are the customers I am after. These are the clients I want.
What is your competitive advantage? Do you want the low cost strategy or the differentiation (e.g., quality) strategy? It's nearly always difficult to do both, and if you lower your prices, even if just for a 'sale,' you've just thrown yourself into the race for the cheapest cake, alongside this competitor and WalMart, etc.
http://www.quickmba.com/strategy/competitive-advantage/
Instead, do what so many other posters above have suggested: Set yourself apart by marketing your image as a high-end, *custom*, scratch-only cake design business. See Kuya's comments.
Then, raise your prices. 
You are in business and you don't know your competitors' products? Buy her product and analyze it. Don't assume. She may be a scratch baker. If you did not test all competitive products, compile all pricing data and compare this to your own products, how do you know where you stand in the market? If you just threw a price out there, that is not proper business procedure and can lead to problems, like failure.
If her cakes are better and cheaper, then your business may not be viable. Don't assume vital information.
Before going into business, a proper business plan will include a market analysis to determine viability.
This post is intended for anyone looking to open a business. Business is mathematics, economics, and emotional appeal. A knowledge of how these work together and proper placement in the market is what is needed insure a success. It isn't that hard if you study these things while you are planning your menu and before you open.
Business is mathematics, economics, and emotional appeal. A knowledge of how these work together and proper placement in the market is what is needed insure a success. It isn't that hard if you study these things while you are planning your menu and before you open.
Well said, SCP. Too often I see bakers who try to slide from the home baker/hobby baker into the commercial baker without the realization that love of baking alone will not suffice. I stay on the home/hobby side (albeit while legally selling my cakes in my small rural community) because I'm not willing to commit to the business side of baking. I get to bake when and what I chose and my pricing can be dictated by my whim if I so chose. That's what distinguishes the hobby baker from the commercial baker. To ignore the business realities is to doom you to failure.
I agree with emphasizing what makes your cakes different and better than your competition's, regardless of who it is. There will always be people who are priced higher and lower than you are, and there will always be clients who are shopping on the basis of price alone. Those people aren't your client, but there will be people who are interested in buying a cake based on quality, and those are the ones who you want to appeal to.
Thanks to everyone who posted truly helpful comments ....
I have posted new signage emphasizing the gourmet flavors / custom cakes / quality ingredients. That has always been my niche anyway. I think that I just need to beef up my signage and advertising, more pictures in my booth, etc.
My price per serving was well researched. In our little corner of AZ, grocery stores dominate the cake world .... and $2 is right at the middle to low end of the average price point for our market. Have not seen anyone else with $1.75 per serving; but then, no one else uses box cake mixes and canned frosting either. For a while, my pricing was $1.85/serving. But I found that I was doing "more" smaller cakes, and "less" wedding and tiered cakes, and not making much after supplies, electricity and other overhead. The number of cakes I am doing has decreased, but I would rather make larger/more quality cakes anyway.
I think I just need to focus on emphasizing the quality, and getting more samples out to the public. Thanks again ...
One thing to consider is you might want to reconsider your business plan. As the late Dottie Walters used to say about demanding a higher price for the product you put out "Honey, just ASK FOR IT!"...
First rule, you have to be YOUR business, not someone else's. They can have their business niche you have yours. If you want to compete as the low price leader, then great, call yourself Walmart, Sam's, or Super Target... If you're going to put your niche as a custom baked and homemade iced designer cake, then there's a premium to pay. You don't want the "price shoppers", they don't pay and aren't loyal for the long-term for the amount of hand-holding you're going to have to do. Yes, the first few you pass up will be painful but the ones that come in because you stand your ground are going to pay dividends. Remember also to factor in the portion size! Those grocery stores may be charging $1.75/slice, but look at their portion size - use that to your advantage! "I'm $3/slice and you get twice the portion and design for the money!" It neutralizes the "price shoppers because they're forced to do some geometry with what they're getting for the money.
You are who you are when it comes to the business. Don't try to be someone else's business plan or model because they're already serving their niche, you need to be your own niche at all times!
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