Competing solely on price is a recipe for disaster!! Why???? Well for one………….

2 Retailers today, generally want to position themselves as the cheaper option. They believe if they sell their products at the lowest price possible, without incurring losses, they will maximize profits and even increase their market capital. Fair enough. This may work for larger retailers like Coles and Woolworths but not for small businesses!! Small retailers and new companies must always bear in mind, larger and more established entities can often choose to lower their prices to create an unfair market advantage or simple barriers of entry. 5 What does this mean? Well put simply regardless of how low you go, your larger competitors more often than not will aim to match your prices and are in a better position to do so. In some cases such entities are willing to forgo potential income such to price out the smaller completion. Larger retailers have the advantage of economies of scale. Their size alone allows them to control key variables along their supply chain, coupled with large volumes of sales, which enables them to realize large end of year profits from small profit margins per product. Small business cannot compete on this level. This is a “big boy’s game”. The advantages of economies of scale are only reserved for the elite few. Remember when your mother told you, that you were told small to play with the big kids, because you might get hurt? 6 Well this is the same principle for small retailers trying to lower the price of their products and services in competition with larger retailers. This may seem successful in short run, once the market catches wind on the advertised savings/discounts. However the increase of sales is usually attributed to the influx of bargain shoppers and not loyal customers. Building a brand solely on solely on low prices, erodes customer loyalty. As soon as competing retailers undercut your prices, your customers vanish. Why – because what got customers through your doors was marketing promoting low prices and not product/service value. Your business was not based on consumer loyalty, rather loyalty to a lower price. The hungry dog always goes to the person carrying the biggest bone! So how do i compete with the giants you ask? The same giants who are increasing their “market cap” by dangling lower prices to a bargain hungry economy? 7 Throw competing to offer the lowest prices – out the window! Let your strategy be solely based on providing value! Going back to the hungry dog analogy, if the dog is loyal too you and derives some sort of value from you, chances it will come to you, no matter how big the bone the other person is carrying!! Let’s think about it for a second. Do we send our children to the cheapest doctors we can find? Do we build our family homes with the most reduced building material?  Do we only consider the buying a motor vehicle if it’s the cheapest on the market? Do we choose our education based on the most discounted courses? Definitely not!!! Why – because humans naturally seek value!!!! People are willing to pay for quality! But frankly – We like nice things and if we perceive value in them we are usually more than willing to pay extra for them! tTim Donnelly a freelance writer and managing director of Brokelyn.com, gives the following example of consumer’s willingness to pay for value: “In a famous video clip from Penn and Teller’s Showtime hidden camera show, diners are lured to an upscale restaurant branded as the world’s first boutique vendor of bottled water. A water steward presents each table with a menu discussing the finer qualities of water purportedly shipped in frome dmountains and streams all over the world, some of which cost as much as $8 a bottle. Of course, the joke is on the customers because all the water actually came from the garden hose out back, but the message was clear: People are willing to pay more for a product if they think it gives them a truly special or significant value—and if you present it to them in just the right way. Your company is probably selling a stuff that’s a lot more valuable than fancied-up hose water. Selling on value, not price, involves a balance of confidence, personal rapport, and doing your homework, and it’s become more difficult as technology gives consumers greater access to price information and competitors” (Donnelly, PUBLISHED ON: JUL 20, 2011, How to Sell on Value Rather Than Price, Retrieved from http://www.inc.com/guides/201107/how-to-sell-on-value-rather-than-price.html ). Adopting the value approach shields you from competitors who are continuously reducing their prices to gain customers. Value builds loyalty – being cheap….just means you’re cheap! So how do we create value???????

Tanaka Musiwa – In collaboration with Colin Kane.


6 thoughts on “HEY GUYS I AM CHEAP!!!!!

  1. Great post and this certainly is something that marketers need to consider as part of their marketing strategy from day#1. Cheap is so cheap and really old hat. Cheap products generally don’t go down well with consumers as they have to part with their hard earned money to buy something of less value and low perceived quality. I really don’t believe that “cheap” should be used in any marketing blitz today, something else may add a higher pitch.

    Liked by 1 person

  2. I agree that advertising a product as cheap will in fact attract customers who are not loyal to the business. For example many customers who purchase a manicure or pedicure from Groupon will rarely convert to a longtime customer. These people will continue to shop around for the discount rather than looking for quality in their services, therefore it’s not really profitable for the company. According to Inc.com repeat customers spend 67% more than a new customer which is much more valuable than a one off coupon.

    From a psychological point of view most consumers still believe ‘You get what you pay for’, so cheaper products are generally associated with perceived lower quality. This will devalue your products or services and will make consumers perceive your business as cheap rather than good value.



  3. While some consumers are happy with cheap, many others would rather spend a little more and know they have quality. Then you also have to consider what you are buying. I for one am happy with cheap knowing that the quality won’t be the greatest, but this will come down to what I am buying. For example, I was recently purchasing party supplies for my daughters birthday party. I am used to going to your typical $2 shop to buy plastic plates, plastic cutlery, plastic cups etc… I know they are cheap and not the greatest quality, but after all, I don’t mind cause they are for one use and then get binned. However, this time, I noticed they were charging $2 for 10 plastic plates. This got my attention, so I decided to hold off buying them and went to Spotlight Spartys instead. Would you believe I bought 20 plates for $2 and the quality was much better. So this taught me that these little guys are being pushed out by the big guys. Even still, I don’t have a loyalty to these small guys and in fact I was annoyed that they had reduced how many plates I could buy for the same price. So my decision was not to go back to the small $2 shop and instead I will buy from Spotlight Spartys. So I agree with your final comment “Value builds loyalty – being cheap….just means you’re cheap!” even though they aren’t the cheapest anymore.

    Liked by 1 person

  4. Thanks for the post. The last question you have posed is very interesting, how do you create value and build loyalty. My personal (B2C) example is clothing. I am very loyal to the clothing brand CUE, it is certainly not cheap when compared to the likes of Target and Kmart. However I had a good experience with a shop assistant at a time when there was a lot bad press about the conditions in overseas sweat shops. They promote australian made and their mailouts are very targeted. I think cheap works when you don’t care much about what you are purchasing but when you care you will seek value. So back to your question, how do you create value, particularly in the B2B selling when you might be dealing with someone looking just at the bottom line.

    Liked by 2 people

  5. Thanks for the post. How do we create value? I guess we need to understand what the customer sees as “value” and as a supplier respond to that view. Customers equally see value in Apple Iphones (very popular), Aldi winter season snow apparel (try getting into the store when those specials are running) and luxury motor cars like Porsche (6 month wait for your car).

    As a supplier we need to understand what market segment we are in and how do we create a better value proposition than our competitors. We don’t have to beat the whole world.

    Liked by 1 person

  6. To me, ‘cheap’ now makes me wonder who’s being ripped off? The third world producer? The manufacturer’s employees? Local manufacturers?
    I get annoyed when I see customers haggling with small businesses to try and match the price they’ve seen in some large company’s catalogue/website – but consumers aren’t necessarily aware of economies of scale, or profit margins. Especially when the alternative is travelling an extra 10km to the soul-sucking shopping centre outlet that stocks their heavily discounted bugaboo pram…

    How do we create value? I think small businesses need to define themselves without trying to directly compete with larger companies – positioning themselves as selling something different.

    I am totally impressed that you managed to squeeze some Penn & Teller in.

    Liked by 1 person

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