Go cheaper … until it’s free!
If I develop or acquire a new product that no one else has, the business guys call this ‘blue sky marketing’. This is the way it went with a Nintendo Wii.
You can promote something that nobody else has got and pretty much charge what you like and make a killing.
The issue comes from when you are trying to sell a product that other people have or have similar of. This is when the market gets created. There are two choices as far as I can see and they are summarised quite well below.
- Price yourself against your competitors providing a similar product but be a fraction less expensive. Advertise and let people know that you are a fraction less expensive than your competitors, reap the rewards by gaining more business, shipping more of the product (whatever that product might be). Know though for certain that your competitors will look at your prices and then go cheaper than you. The balance will swing towards them and your market share will decrease. The amount of people through your door to buy your product will reduce and your profits and turn over will go down.
Simple to affect - just reduce your prices a little bit more so that they are less than your competitors again. Cut your margins and reduce your overheads by having cheaper staff, perhaps a slightly less quality product and a less quality environment. Shout a little bit louder, get a few more people to come for a bit cheaper and then you can maintain your position. Though of course, your competitors will go cheaper again and so the cycle will continue, but it’s ok, because it will drive the market down until ultimately somebody is providing it for free.
The problem with this race downwards is that you will not win. The likelihood of you or I winning a race to the bottom is tiny because the race to the bottom will be won by the guy with the maximum ability to buy the most amount of product. That person would be Walmart or equivalent.
The punch line to this option is… if you lose the race to the bottom, you’re dead.
- Second option is to go upwards instead of downwards. Be dearer than the guy next door, investing more in your environment, in your staff, your equipment and your product. Know that there is only a small niche at this end of the market that you have to counter. It will probably be 10% of the market or less. That means you will need 9 people around you who are cheaper than you to sustain you at the top 10% of the market. Continue to increase your prices and to re invest, to increase your quality, to improve your product and improve the experience, to go upwards and race to the top.
This is a magical place to be if you can find it because it allows you to continue to dream, to invest, to improve and to strive for excellence.
The punch line for this one is that you are unlikely to win the race to the top. There is always someone who will sacrifice themself greater than you who will devote their life entirely to this pursuit who is better than you. The joy is, that even if you finish second you are still close to the top and you are still alive.
Go cheaper if you want but the end of cheaper is free and the end of dearer is never.
Blog Post Number: 1367