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Competing on Price Alone
Inc.:
An old joke: A store owner purchases pencils for 10 cents a piece, then turns around and sells them for only a nickel. Noticing this bizarre behavior, his partner asks, “How do you expect us to stay in business that way?” The man replies, “Volume!”Surprisingly, many novice entrepreneurs choose a similar strategy. They think they can succeed merely by pricing their products or services cheaper than the competition. Low prices, they assume, will generate sufficient sales to more than make up for smaller profits. Like the store owner of the joke, these entrepreneurs rationalize, “What I lose in margins, I’ll make up in volume.”
Competing on price is risky. Yes, some big businesses — and perhaps your local discount drycleaner — seem to thrive on low prices. But low prices means narrow profit margins, and narrow profit margins means less cash floating around your company. With a small financial cushion, you’re vulnerable with every slight increase in costs. The landlord raises your rent 5%? That may be your entire year’s profit.
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Consultor Anónimo on December 9th, 2005 3:04 am
And evenmore, you can achieve volume if you have the capability to deal with it. It makes no sense to look for a great demand of your product / service if you cannot deal with it.
In spanish we say “morir de éxito”, a real danger for small entrepreneurs.
n srinivasan on December 13th, 2005 9:16 am
True!
Th ebasic rule in competing is dont do anything that your competotor can ALSO do easily. Price cutting is one of the easiest to thing to do and is IMO and betrays lack of selling skills, belief in one’s own product and committment to excellence.
BPO for instance is sold as chepaer alternative by manu\y Indian companies to their US clients. The true potential of BPO is it breaks new ground in how business is done. The cost will level by arbitarge sooner than later. The break through is 24/7 service levels and work cycle. Your busies goes on even whioe you are sleeping!
Sinem on May 15th, 2008 4:27 am
When we only deal with the price competition it could be easy for our competitors to copy that strategy. To solve this there must be a sustainable competitive advantage for our business such as an extra service that can be provided by the company to be alive in the industry.
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