How Am I Gonna Compete On Price?

Numbers.jpgYou’re not! Don’t fall into that trap! Don’t cut the price, build the brand! Competing on price is always a bad idea! I used to say that very few organizations can do it long-term. Then I said that only ONE organization has effectively done it for any extended period of time, and that was Wal-Mart. Now, I point out that even Wal-Mart, who redefined the game of competing by offering the lowest price, is hurting. They are learning the hard way what I hope you won’t have to experience personally to learn – That it is far better to build the brand than cut the price!

The simple reason why you want to avoid competing on price is that you cannot fully control your costs. Try as you may, your organization is part of a dynamic environment. What makes the environment dynamic is a set of environmental forces that are completely beyond your control. One of these forces is your competition. You’ll always have some overly eager or just plain foolish competitor who thinks they can beat you on price. Maybe they can, but they will in fact pay quite a price to do it in the long run.

A better strategy is to focus on value rather than price. Find out what is most valuable to customers and what they are willing to pay for, then be better at giving it to them than anyone else. That way, you are offering a true value proposition; something of value for something of value. A true win-win relationship then exists.

By taking the high ground, you may even find you create a premium image and subtly or not so subtly point out that there is a reason why your competitors’ prices are so low – Because what they offer is cheap!

A favorite example of mine was shared by marketers Jeff and Marc Slutsky. Their client owned a full-service hair salon. They had a nationally franchised competitor move into the market with its so-called economies of scale whose offer was a haircut that only set the customer back $5. Rather than get dragged into the mud and try to play the price game, even for a short enough time to keep the newcomer from getting a foothold, they helped their client simply restate their value proposition. They put up a sign in the window that said it all: “We fix $5 haircuts.”

Don’t cut the price, build the brand! Give serious and ongoing thought to how to promote how your offer provides the customer greater value and price suddenly becomes a non issue. In fact, you may even use the very thing the competitor thinks is an advantage to the competitor’s great disadvantage!

In strength, find weakness… and in weakness, find strength.” – Sun Tzu, The Art of War