The new pricing paradigm: the CEO of Oneflare on why going in low is not the smart move

Pricing paradigm

There’s a misconception among business owners that customers consider price to be the key factor when selecting a business online. Yet, our research is conclusive – fewer than 1 in 5 customers will choose the lowest priced quote when selecting a business.

Today, more businesses than ever attract new customers through digital means – a trend started in the early 2000s when free online directories usurped traditional means of advertising – such as the annual commitment to a quarter-page ad in the big yellow book.

This was especially good for early movers – who capitalised on the move to digital faster than their competitors – giving them an unfair advantage that meant they were discovered and won work more often. Since these businesses were being found more often, and were spending less money marketing themselves, they offered lower prices that undercut their offline competition, further strengthening their position.

However, as more businesses chose to participate online, competition increased and margins were driven lower and lower, leading to the perception that, when it comes to digital commerce – price is king and those that go the lowest win the war.

This perception has permeated all forms of online business, business owners of all types often lament the “race-to-the bottom” – describing an unwinnable market consisting of low quality, low cost entrants servicing highly price sensitive customers at unmanageable margins.

But what if I told you that this was wrong? And that, especially when it comes to services, customers almost always prioritise quality over cost.

The data speaks for itself. We analysed more than a million business and consumer matches covering plasterers to accountants, and found that less than 20% of consumers chose the lowest priced quote.

In fact, offering the lowest price can reduce the chances of winning a new customer. As several studies have shown, when it comes to customer psychology, price is interpreted as an indicator of quality.

Therefore, quoting too low and undercutting market rates can unintentionally signify to a consumer that the service provider does not have the expertise necessary to complete the job. After all, charging a fair price is an indicator that a business has confidence in its ability to deliver.

For small and medium enterprises who are savvy enough to adopt digital means to find new consumers, believing that a low-cost strategy is necessary to win, is a fallacy.

So, what do successful businesses marketing themselves online do to win more work? Looking at Oneflare data to determine what is helping SMEs grow their businesses, we’ve noticed three key differentiators that can separate a business and demonstrate quality when acquiring a customer online.

  1. Online Trust: A service business is a very personalised experience for the customer, often inviting businesses into their home. Online review sites help customers make the right decision about who to trust. However, only positive reviews suggest a lack of authenticity and review platforms that allow business to have neutral and some negatives reviews is one that should be trusted. According to a recent study, 88% of consumers trust online reviews as much as personal recommendations. So, for business looking to win customers on digital platforms and channels, carefully fostering your online reputation is key.
  2. Comprehensive Quoting: Businesses that offer a clear list of services, as well as optional extras, and specific expertise, win work over those that provide less information. Customers are prepared to pay for extra services if they’re given comprehensive guidance on the pricing and rationale for those services.
  3. Responsiveness: The speed of reply can be critical in closing an online lead. Those that engage with online leads quickly, and respond in appropriate time to further enquiries are far more likely to close a deal.

In the battle to build online relationships with new consumers it takes a focus on trust, comprehensiveness and responsiveness to win, not price.


About the author

Billy Tucker is the CEO of Oneflare, Australia’s fastest growing online marketplace for services.