The Dangers of Competing on Price
When you sell electronics, you will inevitably run into competitors promising to meet or beat any price offered by any authorised seller. For some reason, this is more prevalent in the electronics marketplace than any other. With that said however, the dangers of competing on price are numerous. Further, if you allow yourself to get caught up in a race to the bottom, you’ll eventually realise nobody wins—hopefully before you’re driven out of business.
The Only Way it Makes Sense
In most cases—if they’re smart—the people offering to meet or beat any price have a significant cost advantage over the rest of the field. This means they likely have a cost structure in which the more volume they do the better the price they can get from their suppliers. If this applies only to you in your segment, congratulations, you can comfortably be the low-price leader. If it doesn’t, you’re going to hurt yourself emphasizing price over value. The only way you’ll do it is by shaving your margin.
You’ll Attract Hit & Run Shoppers
Buyers attracted by low prices are loyal only to their pocketbooks. If you’re thinking being the low price leader in your segment will garner you a cadre of loyal customers, you’re setting yourself up for disappointment as well as miniscule revenues.
Sure, they’ll buy from you when you have the lowest price; but that’s not going to be a sustainable long-term position. Meanwhile, there’s always going to be other sellers out there who are ignorant of this fact. Let them take the losses while you focus on providing value and services their low-price model won’t permit them to offer.
Once You Start, it’s Hard to Stop
If you choose emphasizing price over quality as your business model, it will be very difficult to change the way you’re perceived. When you hear the Volkswagen name, do you think of fine transportation worthy of a $100,000 price tag? Neither does anyone else; which is why the company’s Phaeton large luxury car failed. Once you’ve become known for being a low-cost provider, it’s hard to get the marketplace to look at you any other way.
No Value in It—Literally
If you’re competing on price, but can’t be the lowest-priced provider in your arena, you’ll get nowhere. Think about it. How much value is there in being the second lowest-priced vendor? Look what happened to K-Mart when Wal-Mart got up to speed.
Meanwhile, Target is doing fine.
What’s the difference?
Wal-Mart is ALL about lowest price –period. K-Mart used to own that space and got pushed out. Meanwhile, Target combines a more upscale experience than either Wal-Mart or K-Mart, combined with reasonable pricing. This resonates with customers. Said simply, Target is more value-oriented. You can learn from this, whether you sell electronics, furniture, ebooks, cosmetics, or anything else.
Rather than opening your business up to the dangers of competing on price, look for ways to differentiate yourself. Amazon started out centred on low prices, but evolved to concentrate on speed and convenience. What’s more, the company raised its prices, even as it offered free shipping and faster delivery options.
What’s the lesson there?
More often than not, adding value costs less than cutting prices. It also makes your business a more attractive proposition in the marketplace. Yes, price is important, and you should strive to be reasonable, but in the long run, you’ll get more loyal customers with quality and good service than you will with low prices.