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.
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This is excellent!! Thanks for sharing 🙂
Alisa: Thank you. Greatly appreciated!
Hi Bob:
Thanks for sharing, read your book winning without intimidation a couple of years ago. Awesome read.
My mentor used to tell me: the easiest denominator that a competitor can match is the price. The most difficult denominator that a competitor can match is quality/service. I believe that the when there is a good balance between price and quality it’s a win-win situation for both the vendor and customer.
regards,
arvind
Arvind: Thank you for your very kind words. And, yes, a very wise mentor (and protege) 🙂
BRILLIANT!!! and all true ♥
Ali: Thank you!! 🙂
Wonderful points, Bob! Powerfully put! I’ll share and remember them. Sorry we didn’t get to see you on Eric Worre’s event. (I’m a coach for network marketers.) I hope he’ll be able to broadcast you. ~ Bess McCarty
Bess: Thank you for your kind words about the post. And, yes, sorry the Skype feed didn’t work out for Eric’s event. I did record a 30-minute video for him to send out. I hope you enjoy it. And, I appreciate Randy’s referral from G+.
(Randy Gage sent me here from G+)
I am new to this idea. I am thinking of adding value to my blog and Etsy shop. Still, in the thinking process though. thanks for the article. Your blog is very thought provoking.
Bindhurani: Thank you. So glad you enjoyed the article and that it perhaps provided some usable thoughts!
Well said, Bob. Having a low price, but a high margin i.e. one that provides adequate contribution to cover desired business profit targets, is the sweet-spot – especially in this economy. I just wish more of my clients would focus on maximising margin AND minimising price. Of course, the way this is communicated to buyers is also critical – as you so aptly allude to.
Best regards – and good selling.
Robin
@robindickinson
Robin: Thank you Robin. Always appreciate you sharing with us!
It is amazing to realize how often consumers are practically begging for a reason to choose on any basis other than price but simply lack needed information.
Tony: What a terrific point! Thank you for sharing that.
Bob,
Great post, yet again. I think it is very important to remember that you owe it to your clients to make a profit, and that to price yourself below your value will ultimately damage them as much if not more than your own company. I have found that winning clients based on price points is really a loss in sheep’s clothing.
Steve: Exactly, my friend. Thank you!
Thanks for sharing, Bob. Very true and reminds me of a story…
Two guys from a northern state came up with a money-making idea selling watermelons. They bought a truck and drove to Texas where the melons ripened months before they did at home and bought a truckload for $4.00 per melon. They then drove home and quickly sold out, selling their watermelons for $3.00 each. Afterwards they realized something was wrong. One of them turned to the other and said “I think I see what our problem is… we need a bigger truck!”
Keith: Yep, exactly. That was their problem…not enough volume. LOLOL!