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Why Competing on Price Is Self-Defeating

Monte Wyatt & Brad Sugars, Jan 16, 2020

If all a company thinks about is profit, it's operating from the thinking that if it doesn't quickly grab up everything it can, it will lose out.

This leads to the unfortunate belief that every business functions like the commodities market for corn, wheat, and soybeans. That is, that consumers demand access to a limited supply of product, and whoever finds a way to undercut or better a competitor's prices is the one who wins. It's the win-lose mentality.

The threat in this kind of thinking comes from believing that your business” let's call it your bushel of soybeans” is precisely the same as your competitors, so the only way to sell your goods is to have the lowest prices.

But you insist that your soybeans are special. There's no comparison to other soybeans, because your soybeans feed more people per pound. Or they taste like chocolate. Or they cure the common cold. Thinking this way, you aren't selling soybeans: you're selling magic beans, and the market rates for soybeans don't apply. You can set your prices to be whatever you want.

If you haven’t taken the time or effort to figure out the precise difference between you and your competition, it’s seems easy to act like a commodity and compete on price because, in the short term, you’ll make a profit. But as soon as someone comes along with the equivalent of a magic bean (such as the iPhone), your shortcut to profit will cripple you (as happened with the BlackBerry).

Profit from competing on price is definitely one way to distinguish yourself from the competition: you get a bigger piece of the pie and you win! However, when your customers save money on your low prices they have more to spend, and they do, on the competition, such as paying $5 for a latte at Starbucks.

Starbucks didn’t achieve exponential growth by competing on price.

Starbucks, Apple, and other companies with exponential growth have worked so hard to add zeros to every aspect of their businesses that the cumulative effects are companies that are magically unique.

There are many ways to determine how you compete in the marketplace, beyond price. But here is one way “judge your marketability.

Take these steps to determine your marketability:

  • How easily, efficiently and affordably can you access the right audience?
  • How easily can the right audience understand what you're saying?
  • How easily can your solution solve the right audience's problem or need?

You can evaluate a product’s marketability by determining your company’s ease in achieving these things together with your ease and speed of expansion, and whether you can support the level of growth implied by your expected sales.

This will help you begin to see how you differentiate yourself “beyond price.

To recap, if all a company thinks about is profit, it's operating from the thinking that if it doesn't quickly grab up everything it can, it will lose out. You must figure out how you can differentiate yourself in the marketplace, beyond price.

We'd love to hear from you. How do you set yourself apart? Thank you for sharing.