OK. This bit is for all the startups and small businesses out there. And maybe for one or two middle-market businesses too. But most middle-market firms, and certainly all the big businesses, have already learned this lesson: Don’t EVER be the cheapest solution! That is the kiss of death for any brand. Consumers and business purchasers always put downward pressure on prices. Everyone’s a bargain hunter. But that doesn’t mean they want the cheapest price. That means they want the best value. When your competitors lower their prices, don’t take the bait! Do your best to hold your ground and justify your higher price by pointing out the extra value you give for it. Let’s say your margin is $2 per unit and your competitor is willing to live with a $1 margin. That means someone else is willing to live with 99¢, And someone else with 98¢. You can see where it leads. Just ask Papa John’s Pizza.
It wasn’t always true that big businesses knew about the don’t-be-the-cheapest positioning lesson. A few years back, Papa John’s and Domino’s and one or two other large pizza chains got caught up in just such a race to the bottom. They were each trying to deliver their pizzas for a dollar less and a minute faster than the others. They forgot about the old adage: “High Quality. Quick Turnaround. Low Price. Pick any two.” By focusing on high speed and low price, they eventually had to sacrifice quality. And they continued to sacrifice until their food became the butt of jokes. People were saying the pizzas tasted worse than the boxes they came in. Finally, the chains had to relent. Papa John’s had to run an expensive new ad campaign promising to use higher-quality ingredients and to employ more hand-crafted pizza-building techniques. Basically, they promised to be more respectful of the product they serve, of the people who serve it and, mostly, of the customers who buy it.
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You can still differentiate on price. It’s OK to be cheaper. Just don’t be cheapest. You can be an attractive competitor by offering a “boutique” solution. You can offer lower prices if your overhead is lower than your competition. Perhaps you pay less on rent, less on middle management and/or less on technology. There are plenty of ways you can show your market they can pay less without sacrificing speed or quality. But, if the buyers point out there is an even less expensive solution, be ready to justify your pricing with all the benefits to be gained by choosing you instead of the cheapest option.
For instance, a small professional services firm, like an architect, can be a much more affordable choice to a client than a large firm with offices worldwide. But if the client finds an even less expensive option, the architect has to quickly point out the added value she brings – things like more experience or more design awards, etc.
If a B2B manufacturer finds himself being undercut by a competitor, he must demonstrate the advantages he brings to the client – like a superior shipment tracking system or round the clock production.
But, in neither case, should prices be lowered. Setting a brand strategy means making a business case for why a brand should be positioned in a particular way, relative to the competition. That’s giving the market a reason to buy in spite of pricing. With that in mind, it’s ok to be an affordable, boutique solution. Just don’t be the cheapest option.
Best Branding Reads – Week of February 25, 2019
Nordstrom's quirky new campaign puts human expression center stage
A strange ad for a department store. A strange ad for almost anybody.
5 Keys To Understanding Your Brand’s Competition
When positioning, you need to see what “territory” your competition is leaving unoccupied.
Branding Clarity Key to IP Valuation for Mission-Driven Companies
Delivering on one’s mission can result in real brand equity – money in the bank!
Brand Strategy For The Startup CEO
I’m often asked WHEN a startup should invest in its brand.
Direct-to-consumer brands are redefining marketing in the age of authenticity
How do you build a brand entirely online?