Marketing Pricing Strategies (The Low Price Monster)

Key Takeaways

We all have fears to some degree or another. When I was a kid, I was afraid of the monster under my bed. I used to jump off the bed so he couldn't grab me as I stepped down. He was sneaky like that. Now, as a marketer, I'm afraid of the low price monster. Terrified, actually. Because, you see, when everything else is equal, the defining consumer buying decision will be price. And that's why on today's episode, we're talking all about the dangers of low pricing and the lose-lose race to the bottom. Hello and welcome. My name is Adam Hart and you're watching the Modern Marketing Show, where we take different marketing tactics, tools, tips, and strategies and break them down into bite-sized actionable clips that you can use to immediately take your business to the next level. When it comes to choosing one product or service over another when everything else is equal, the defining consumer buying decision will be price. So, the solution then is to not let everything else be equal because you never want your business's primary competitive advantage to be price. Never. You see, when you compete on price alone, a funny thing happens. It's a race to the bottom, and whoever gets there first loses. You can't tell Walmart, Walmart, and you can't out Amazon Amazon. I mean, I guess you could try, but why would you want to? There are so many easier, more profitable, and faster roads to business success. The hardest part of competing to be the lowest price is that you also tend to have the lowest margins. This means you need to do double, triple, quadruple, or even 10 times more volume than your competitors, sometimes just to break even. That's a brutal strategy. In many cases, it's a lot easier to sell a single $1,000 item than it is to sell a thousand $1 items. Low price is also the world's worst competitive advantage because in today's global economy, there's almost always someone out there willing to do it cheaper. Here's how it normally goes. You lower your prices in an attempt to win more market share. Your competition sees what you're doing and quickly lowers their prices as well. You see that the competition's prices are now lower, so you inch yours down another few dollars. The competition sees this and so they take their pricing down a few dollars more and lower and lower and lower it goes, destroying profits, eating away at your margins, and forcing you to cut costs in other important areas like customer service after sales support, marketing, and business development until eventually someone goes out of business, a principle known as predatory pricing, or someone smartens up and decides to start competing on something other than price alone. When it comes to a price war, the best way to win is to avoid it. Fortunately, when looking for a way to stand out from the competition, the opportunities are nearly endless. Can your business be better, faster, nicer, cooler, cleaner, smarter, prettier, tastier, easier, cheaper? I'm just kidding. Don't be cheaper. When you look for a competitive advantage to capitalize on, the first step is to take stock of your business's strengths. Don't be afraid to write down anything and everything that comes to mind. Ask yourself questions like, "What is it about your business that's unique? What makes your business better? Why would a customer choose to do business with you rather than someone else? Once you've got these down, take a look at your competitor's weaknesses and write them down as well. Once these are all tallied up, take a look at your customers and what they value most because it's absolutely pointless to do something better than your competitors that your customers don't even care about. Pricing, just like every other element in your business's marketing, tells a story to your customers. Without knowing any other details, would you believe that a $100,000 car was nicer than a $10,000 car? most would. In fact, pretty much everyone's going to say the $100,000 car is nicer than the $10,000 car. This is because higher pricing sends a message of higher quality. Now, you obviously need to back this up. But in many cases, and depending on the industry you're in, customers can be turned off by the lowest price option. After all, do you really want to hire the lowest price surgeon, the lowest price pilot, or the lowest price lawyer? Rather than low price, pick another competitive advantage and run with it. Rather than a scary monster and a race to the bottom, you'll be able to use the additional revenue to improve your service, quality, product, and overall value. Your business will do better, you'll do better, and your customers will thank you. So, thanks so much for watching. If you enjoyed this episode, be sure to subscribe to the channel, give it a thumbs up, and if you have any questions, comments, or suggestions for a future video, be sure to leave them in the comments section below. If you'd like more content like this, then head over to adamheart.com and sign up for the Modern Marketing newsletter because this is where I share my best tips, tricks, and strategies that I don't share anywhere else. Take care for now and I'll catch you next time on the Modern Marketing Show.