Recently, I tweeted the following:
“Competing on price alone is a race to the bottom,
and it’s a race nobody wins.”
Why do I say nobody wins? First, please allow a slight correction: there are huge super-store type places whose entire Value Proposition is indeed that they have the lowest prices. They do very well. And, their customers get what they want, as well.
I’m talking about you, me, and the vast majority of businesses in our mainly free-enterprise based economy. By and large, focusing your presentation on having the lowest price is hugely counterproductive. And, truly, no one wins; the one who loses the sale loses. The company and salesperson obtaining the sale loses. And, yes, even the customer loses.
The first one above is obvious.
But, why does the winner actually lose?
- Live/Die by the Sword: Win the sale based on lowest price and you will most likely lose your customer the moment someone new comes along with an even lower price. If they buy from you on price, they’ll also leave you based on price.
- Lack of Profit: Or, as Chubby Checker famously asked, “How low can you go?” If you go low enough, you won’t have enough profit to keep your business sustainable. Plus, you’ll be investing time, energy and service into an account that doesn’t pay for itself, keeping you from landing other, more profitable accounts. Or, you might need to provide less service for accepting the low price, which will harm your customer, and cost you in effectiveness and reputation…and ultimately, new business.
Reminds me of the person who says, “Well, sure, we lose money on every sale…but we make it up in volume.” 🙂
Okay, so what about the customer? He or she loses, too? How can that be? Yes, counter-intuitive. So, consider:
- At best, lack of service: If there is little or no profit, the vendor is not able to provide the very best care and service. I don’t mean they don’t want to, but they probably are not able to! (See point #2 above.)
- At worst, out-of-biz vendor: Certainly if the seller won this buyer’s business based on low price, they are doing the same with others. They are not making a large enough profit and that spells disaster. Disaster for them. Inconvenience for the buyer.
Two quick points to end this post:
- As the salesperson/company: it’s fine to have the lowest price, but don’t sell on that being their reason to buy. Sell on value.
Key: When you sell on price, you are a commodity. When you sell on value, you are a resource.
- As the customer: it’s fine to try and obtain the lowest price possible, when all else is equal (or close enough to equal). But, remember the famous words of John Ruskin when it comes to buying on low price alone.
Let’s continue with with this topic in our next post.