Low Prices Are No Guarantee Of Profits
Rhonda Abrams at TheIthacaJournal.com:
Whenever I ask first-time entrepreneurs what’s going to make their businesses different from the competition, many of them say, “We’re going to be cheaper.â€?
They think they can succeed with a strategy of undercutting their competition’s prices for products or services. Low prices, they assume, will generate sufficient sales to more than make up for smaller profits. “What I lose in margins, I’ll make up in volume.â€?
After all, they see tons of advertisements for big companies that only seem to emphasize low prices. And they know that they comparison shop before they make purchases. So they think that a strategy of low prices is the path to success.
Competing on price is risky. Low prices mean narrow profit margins, and that means less cash. With a small financial cushion, you’re vulnerable with every slight increase in costs. The landlord raises your rent 5 percent? That may be your entire year’s profit.
How can a small company still maintain competitive pricing?
- Carve out a niche.
- Work smarter, not cheaper.
- Focus on value, not price.
- Target the right customers.
- Build loyalty to you, not your price.
Don’t let yourself get caught in a continual battle to be the “low-price leader.â€? You may win that battle but lose the war — or worse, your business. Remember, you’ve got a lot more to offer than just a low price.
Photo by washed up.
jeffrey OBrien on January 23rd, 2007 1:27 am
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cassy on December 14th, 2008 4:44 pm
If that is their marketing strategy then they knew already if it is profitable or not, maybe they lower their price because of the big competition in the market today. but for us buying public that is good news.
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