A message for those business people who insist on competing on price: go ahead!
That’s right. If you have a cost advantage, flaunt it. Cut your prices, build marketshare, consolidate that cost advantage and annihilate your competitors.
So what’s the catch?
Well, to successfully compete on price, you need to be able to manufacture, market and distribute your product more cheaply than your competitor can. Plus you need the resources to win the price war you inevitably start.
If you’re a small business, you probably don’t have a cost advantage – let alone a sustainable one.
A far better strategy is to exploit your larger competitor’s Achilles’ heel and compete on customer intimacy.
Focus on a niche too small to attract the attention of your competitor, customise a product-service offering specifically to fill the unique needs of that niche, charge a premium for your ‘total solution’ and thumb your nose at your price-obsessed competitor!
So can a small business ever compete on price?
Sure. If, and only if, it can develop a cost advantage that can’t be emulated by its competitor.
Case in point: Dell Computers. Selling direct provided Michael Dell with lower distribution costs than Compaq, HP and IBM. The big three couldn’t emulate Dell’s distribution strategy for fear of disenfranchising their reseller networks. Last quarter, (for just one quarter) 14 year-old Dell pipped Compaq to become the world’s largest seller of personal computers.
Can price competition be a valid strategy? Yes it can. But tread carefully.