The
Dangers of Competing Only on Price
For the buyer, money isn’t usually the deciding factor
Consumer purchasing decision are influenced by a number of factors. Price is just one of them, and contrary to popular belief, it‘s not even that high on the list. If you don’t believe this, take a look around your own house. How many of the things that you have are the cheapest available? Look in your refrigerator – are all the items generic? You probably don’t buy solely on price, and neither does your market. That isn’t to say that price isn’t important, but understand that people buy for a lot of reasons. If your advantage is price, go with it. But make sure you take the time to understand what other factors your market considers important. In the absence of any discernable difference, people will buy on price. Put another way, if the consumer sees no real difference between two competing products, he or she will usually buy the lower priced one.
As marketers, it’s our job to make the prospect understand that there is a clear and important difference, and that our product is substantially better, whether it’s higher or lower priced. There will always be a segment of the buying population whose main or even only criteria is price. Most businesses would do well to concentrate elsewhere, because unless you can consistently offer the lowest price, you won’t keep them as customers. This consumer type has little or no brand loyalty- they shop by looking at pricetags, not products. If your product is higher priced than similar products, you need to show clearly why your product carries a premium. “Because it costs us more to produce” won’t interest the market. I’m talking about inherent value, added service or convenience premiums or carefully considered positioning. Not that you have the most clever ad campaign, or have scored the highest name recognition in your area. There needs to be something about your product that makes it worth the extra money.
You can’t fool the consumer for long. Here’s an eye-opener: next time you’re at the supermarket, stop and look at a section of similar products. It could be soap, toothpaste, or whatever. You’ll see a dozen or two competing products. In the section, there will be a range of prices, with the most expensive sometimes costing several times what the least expensive costs. Why? How much of that is due to market positioning, and how much is due to the product having inherent superiority? Competition among mass-market products like you’ll find at the supermarket is brutal. Each has been carefully researched, tested and positioned before it makes it to the shelf. And the marketplace will quickly eliminate those products that don’t satisfy its needs. If it were only a matter of price, the supermarket would be full of generic products.
When I was in college, I shopped for toothpaste. I don’t mean Crest or Colgate or Aqua Fresh, I mean toothpaste. It came in a white tube with large black letters: TOOTHPASTE. That was it for packaging. At the time, I was clearly a price shopper. These days I have options. Like most people, I consider other factors when buying not just toothpaste, but other products and services. There is something to be said for being expensive, also. There are a lot of products that people buy because they are expensive. And not all of them are of superior quality. The point is that there is room for a variety of price points in all but the most commoditized of businesses. And even those businesses can often charge more for convenience or superior customer service (2 things that aren’t part of the product, but part of the delivery or ongoing relationship.)
A solidly positioned product has more going for it than one advantage. If price is all you have, you won‘t be around long, because sooner or later someone will undercut you.
ABOUT THE AUTHOR
Derek Fisch is founder and President of Velocity Media, a full service marketing and advertising firm.
NOTE: You’re welcome to “reprint” this article online as long as it remains complete and unaltered (including the “about the author” info at the end), and you send a link to your reprint to design@velocitymediainc.com.
Back to Resources page
For the buyer, money isn’t usually the deciding factor
Consumer purchasing decision are influenced by a number of factors. Price is just one of them, and contrary to popular belief, it‘s not even that high on the list. If you don’t believe this, take a look around your own house. How many of the things that you have are the cheapest available? Look in your refrigerator – are all the items generic? You probably don’t buy solely on price, and neither does your market. That isn’t to say that price isn’t important, but understand that people buy for a lot of reasons. If your advantage is price, go with it. But make sure you take the time to understand what other factors your market considers important. In the absence of any discernable difference, people will buy on price. Put another way, if the consumer sees no real difference between two competing products, he or she will usually buy the lower priced one.
As marketers, it’s our job to make the prospect understand that there is a clear and important difference, and that our product is substantially better, whether it’s higher or lower priced. There will always be a segment of the buying population whose main or even only criteria is price. Most businesses would do well to concentrate elsewhere, because unless you can consistently offer the lowest price, you won’t keep them as customers. This consumer type has little or no brand loyalty- they shop by looking at pricetags, not products. If your product is higher priced than similar products, you need to show clearly why your product carries a premium. “Because it costs us more to produce” won’t interest the market. I’m talking about inherent value, added service or convenience premiums or carefully considered positioning. Not that you have the most clever ad campaign, or have scored the highest name recognition in your area. There needs to be something about your product that makes it worth the extra money.
You can’t fool the consumer for long. Here’s an eye-opener: next time you’re at the supermarket, stop and look at a section of similar products. It could be soap, toothpaste, or whatever. You’ll see a dozen or two competing products. In the section, there will be a range of prices, with the most expensive sometimes costing several times what the least expensive costs. Why? How much of that is due to market positioning, and how much is due to the product having inherent superiority? Competition among mass-market products like you’ll find at the supermarket is brutal. Each has been carefully researched, tested and positioned before it makes it to the shelf. And the marketplace will quickly eliminate those products that don’t satisfy its needs. If it were only a matter of price, the supermarket would be full of generic products.
When I was in college, I shopped for toothpaste. I don’t mean Crest or Colgate or Aqua Fresh, I mean toothpaste. It came in a white tube with large black letters: TOOTHPASTE. That was it for packaging. At the time, I was clearly a price shopper. These days I have options. Like most people, I consider other factors when buying not just toothpaste, but other products and services. There is something to be said for being expensive, also. There are a lot of products that people buy because they are expensive. And not all of them are of superior quality. The point is that there is room for a variety of price points in all but the most commoditized of businesses. And even those businesses can often charge more for convenience or superior customer service (2 things that aren’t part of the product, but part of the delivery or ongoing relationship.)
A solidly positioned product has more going for it than one advantage. If price is all you have, you won‘t be around long, because sooner or later someone will undercut you.
ABOUT THE AUTHOR
Derek Fisch is founder and President of Velocity Media, a full service marketing and advertising firm.
NOTE: You’re welcome to “reprint” this article online as long as it remains complete and unaltered (including the “about the author” info at the end), and you send a link to your reprint to design@velocitymediainc.com.
Back to Resources page