Competing primarily on price isn’t a very fun way to run a business.
Unless you’re Walmart. But even then you don’t want to supply pickles to the behemoth.
Just over a year ago I worked for a company that competed solely on price. New employees were hired and given few dollars above minimum wage. Each year benefits were reduced and more restrictions were placed on promotions. We may not be the best at what we did, but no way would anyone undercut our price!
It was a vicious cycle. A race to the bottom.
The work was technical in nature and not always easy to explain to those who were most in need of our services. Imagine going into a Best Buy and searching for a printer. The number of models and features are overwhelming to many buyers. In that state of confusion, many will select the “safe" option which tends to be the least expensive. I’ll bet the thinking goes something like “If I make a mistake, at least it won’t be an expensive one.”
We were the Walmart of our industry: big and cheap. Our prices were so low that we often had to explain how we stayed in business charging below market rates. A number of customers thought our low rates reflected subpar technical skills and took their business elsewhere.
Seth Godin refers to this as the tyranny of low price.
It’s been just the opposite at at my current employer, Puget Systems.
Instead of competing on price we compete on quality and service. Our goal, starting from the owner on down, is to build the best quality PC we can. Sometimes that means intentionally choosing not to compete at every price point. Take the sub $750 desktop and laptop, products heavily advertised by Dell and HP, for example. We don’t offer a model in the price range, not because we can’t but because doing so would lead to a number of compromises in quality we aren’t willing to make.
What I’ve learned is that companies that compete solely on price seldom give their customers reason to look at anything but the bottom line. Companies such as Walmart, Amazon and even Costco can offer a low price and still survive but only if they grow so large that the massive quantities sold make up for the low margins.
What separates your product or service from the competition besides price?