July 23, 2010 at 11:52 am | Blog
How to avoid the “Race to the Bottom” and marketing your company as a higer-value provider
In tough economic times, many companies are tempted to try to compete on price. “If we cut our prices, we can drive up our sales volume,” these companies’ leaders say to themselves. “Then we’ll be better off – and we can always raise prices again when the economy recovers.”
This is a mistake! Don’t do it! If price is your only sales strategy, you’re going to lose in the long run.
Here are some reasons why:
- The incredible shrinking profit margin: Every consumer transaction has become increasingly transparent – and in many cases, while it’s great for consumers, this transparency is the enemy of profit margins. It’s hard to maintain big profit margins if your customers are constantly able to research prices online, compare your prices with competitors, and generally whittle away at your selling prices.
- “Temporary” price cuts tend to become “permanent.” Don’t damage your brand with a temporary price cut. If you try to compete on price in the short run, customers are going to be reluctant to go back to paying higher prices in the future – many companies find that it is often difficult to raise prices once customers get used to paying a lower price. And many “premium” brands find that their unique cachet disappears when their products start showing up in the bargain bin.
- You will never be the best in the world at “low prices.” Just like the old saying, “no matter how good you are at something, there’s always someone in the world who’s better than you,” in the entire world, you’re never going to be the lowest-price option. There will always be someone who is willing and able to go lower on price. We are all competing in a global market against Wal-mart and McDonald’s and lower-priced talent in lower-wage countries; if price is the only selling point, none of us are going to survive for long.
So what can you do?
Developing your Competitive Advantages to establish your company as a higher-value option.
Ultimately, price only matters when there is no differentiation in the market – when the product is a commodity and all the options look the same. If consumers feel that they can get the same value for a lower price, they’ll take that deal. You need to make sure your customers are aware of the better value that your product or service delivers – if customers value what you offer, they will pay a higher price.
Look at Apple. Even through the depths of the worst recession in 30 years, Apple continued to post record revenues – without cutting prices. One reason for Apple’s success is that they are able to charge a premium for their products because they really are the “best in the world” at designing and delivering delightful, innovative personal electronic devices that people love. And Apple has a 60% profit margin on every iPhone it sells!
Don’t try to compete on price; it’s ultimately a loser’s game. Instead, find out what you do better than anyone else in the world – your unique competitive advantage.
Jaynie L. Smith, CEO of Smart Advantage, is the author of the best-selling business book, Creating Competitive Advantage.
Hailed as “One of the most influential books in the business world” by bookjive.com
Purchase the book from Amazon