THOUGHT LEADERSHIP
Stop competing on
PRICE
Little high, little low – how do we cost out our products and services, asks Scott Langley.
J
ust the other day, speaking to a store owner, I again heard the all-too-common complaint, “Those other guys keep undercutting us!” He was lamenting the fact that it was too easy for his competitors to keep offering lower prices on the same products, especially online, without having to carry the same overheads that he has to from his brick-andmortar store in a prominent retail centre. What’s more, he felt he was offering a better level of service, like the expert advice his employees were freely giving his customers, which his competitors were not. Still, he found it most aggravating that he was losing sales to a competitor based on a single determining factor in the purchase decision – price.
THE COMMODITY PROBLEM The businessowner’s trap was that he had allowed his products to become commodities. A product is a commodity when it is available from many suppliers. Even if the products are
ABOUT THE AUTHOR different, once a customer perceives them as being ‘the same’, they have been commoditised in the market’s mind. The problem with commoditised products is that they are subject to price-driven purchase decisions. When all the available solutions are perceived as being equal, the cheapest one is, by definition, the most valuable. Why would you pay more for the same can of Coke on this shelf than the one on that shelf in the same store? Commoditised goods are also valued at the point of market efficiency. In effect, this means that the marketplace will continue to drive the prices down through natural competition until they reach equilibrium. For many products and services, the price wars continue until the price point holds just above the survival mark for the suppliers – just enough to continue selling and keep the lights on. Unfortunately, with margins this razor thin, it is only a matter of time (or unforeseen circumstances) before they succumb to their inevitable demise.
Scott Langley is the director and founder of Kaizen Alpha Marketing. When he’s not coaching, consulting or building digital sales funnels, he enjoys spending time with his family or falling off a surfboard at his local beach break. If you want help crafting your unique offer, please reach out to him at scott@kaizenalpha.com or visit www.KaizenAlpha.com. PRICE-DRIVEN VS VALUE-DRIVEN PURCHASES So how does one get out of this ‘apples for apples’ comparison race to the bottom? By changing the conversation from price and making it about value. As author Dan Kennedy said, “There is no point in being the second cheapest supplier in your market. If you can’t be the cheapest, why not be the most expensive?”
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