Why cutting prices can save your business

Francis Wade, Contributor

Recently, I had a revelation: today's businesses need to aggressively drive down their prices in order to stay competitive.

The evidence can be found on a website that helps you cut the cost of key services by up to 95 per cent. It's called www.fiverr.com and it's a game-changer for professionals who offer services that can be delivered from afar such as graphic design, programming and voice-overs. All of them cost only US$5.

The site's premise is simple. It invites people from all over the world to complete small projects for the grand payment of US$5. While that might not seem to be a lot of money to us, the fact is that almost half of the world - more than three billion people - live on less than US$2.50 per day. Most have access to the same technology that is used by the largest corporations, and they are collectively driving down the prices of small jobs.

Here are three actual examples of work that fiverr.com freelancers have completed for my firm:

Case No 1 - Designing a flyer

A local graphic designer might charge US$75-US$200 for a promotional flyer. On fiverr.com, that same job costs US$5. I recommend my Filipina designer 'furiegfx' who I have never spoken to, and of course have never met. For my firm, this means that we can produce a flyer for every event.

Case No 2 - Doing a professional voice over

In general, an American or British accented voice-over can cost US$200 for 15 seconds. On fiverr.com, for US$5 each, I received perfect two-minute male and female voice-overs using a script that I authored.

Case No 3 - Spellchecking

An American living in Belize does my proofreading for about 2-3 cents per word. She's fast, thorough and apparently works on a 24-hour clock based on her blazing-fast turnaround time.

In each of these cases, the freelancer I used sent the finished product within a day, even on weekends. Payment is done via credit card, and when the job is complete I can publicly rate their performance which is instantly added to their overall score and displayed on their homepage. I contrast that with a local provider I recently used whose obscure pricing - "Don't worry, I'll take care of you" - late delivery and difficult payment process made me vow never to use him again.

The point of this article is not to advertise the existence of fiverr.com and other services that are rapidly transforming the business world, or to run anyone out of business. Instead, I want to put local companies on guard, and argue that we all must be finding ways to reduce the prices we charge our customers.

Product and service pricing here in Jamaica often gets confused with issues of pride, prejudice and insecurity. We refuse to lower prices because we think we 'deserve more'.

The fact is, markets don't care for our well-tended opinions, and the best way to run a business in today's world is to find ways to drive down prices. This isn't to say that you should simply close your eyes and reduce your profit margins.

It does mean that, like the users of fivver.com, you must use best practices, new technology and innovation to reduce the costs that are built into your offerings.

Most believe that this is a way to increase short-term profits, but after seeing what's happening on fiverr.com, I'm convinced that it's the best way to keep your business alive.

Indeed, some will actually benefit, as Digicel did when it first entered the mobile-phone market. Its lower prices led to a burst of hitherto unforeseen demand that caught everyone by surprise, and allowed them to take a dominant market share in record time.

This strategy of increasing total profit rather than marginal profit is well documented, but it might take the scare of a fiverr.com to get us out of our local comfort zones. If we escape them, we can end up as players in the global marketplace, which can be quite frightening, but promises to be much more rewarding.

The local company that can beat the competition from anywhere in the world will always be successful.

Francis Wade is a consultant with Framework Consulting. columns@fwconsulting.com