Dad, what if I sell at the lowest price?
At the breakfast table this morning my son stated that if he would open a store and sell at a lower price then the competition, then all the customers would buy from him. Though it is an interesting idea I thought I had to question it a bit.
- If we have two identical candy stores, both buy candy for € 10 and the first one sells it for € 11 and the other for € 15. Then the first store would have to sell to 5 customers to earn as much as the second store. Think about all the extra work in marketing, sales, transportation, stacking shelves of candy, talking to customers and so on. Would you rather be owner of the first store or the second store? After thinking for a while he would probably prefers store number two. Because it seemed a bit less stressful.
Then I asked him a series of questions to see if he would like to buy from the cheapest store:
Dad: If you want to buy a toy, would you like to buy the cheapest toy?
Son: No, it will probably break easily, and I would have to buy a new one
Dad: What about the cheapest candy then?
Son: It probably contains a lot of unhealthy calories...
Dad: They all do, but I think your refering to other strange chemicals. What about the cheapest apartment?
Son: No, then it would probably be too small. But yes, I think so anyway because then you at least have a place to live
Dad: How about the cheapest Pokémon cards?
Son: Then they are probably fake
Dad: But if you do not want to buy the cheapest of any ot the samples I posed, do you still think it is a good idea to open a store and sell to the lowest price?
Son: I did consider buying the cheapest apartment, but... no, perhaps it is not such a good idea.
Let's go back to the candy stores. If they want to compete on price, one of them might let the staff go to lower the costs, then the other let the staff go and sell their store, leaving them with a table on the street, then the other one will sell the store as well and just leave the candy on a blanket on the street with a jar where you can put the money when you buy. Competing on price alone is a is a race to the bottom, you are much better of trying to create value in other ways like provide better service, finding the best position of the store, displaying the candy in a nice way and so on.
I love these kind of conversations, and are always trying to find new ways that businesses can provide more value and in some cases even remove these small but significant issues in the service that can any customer enough to just pick another service.
How do you look at your business? Are you thinking about all the touchpoints your customer has when they interact with you? Is price the only thing that you customers care about? In that case, perhaps you should try to find some new customers...
- price, marketing, education