6 Reasons ‘Low Price’ Costs You More in the Long Run
Technology has streamlined processes and opened up the world’s labor forces, thereby helping to cut the cost of doing business. However, this same technology has led to comparison shopping and price transparency. In other words, for all the good it’s done to make your business competitive on price, technology has leveled the playing field in this area.
Price is no longer a marketing differentiator, and finding the lowest price has become a consumer addiction. But trying to be the cheapest product or service around can cost you more in the long run. Here are six reasons why:
1. You simply can’t win on price: There’s always a provider of the most affordable widget, but it’s never the same provider for long. New entrants, promotional discounts, varied business models and a bevy of other influences are constantly changing cost models for each company in a unique way. As a result, the lowest price position is never held by one company indefinitely.
2. Innovation is expensive: In virtually all businesses, profit is made by delivering on a principle product or service for which there's a known consumer demand. The consistency of this revenue stream allows companies to make their fulfillment efficient, increasing profitability and then allocating a part of that profit to innovation. However, downward pressure on the price of the primary product or service can affect the allocation of your budget between innovation and quality.
3. Businesses are like sharks: They have to keep moving or they’ll die. If a business can’t innovate, its days are numbered. Therefore, when budgets are tight and it’s a choice between quality and innovation, it seems safety, regulatory adherence and best practices are often cut … despite the risks.
4. Quality impacts loyalty: Price isn’t a compelling or unique selling position for any company, and it can make consumers question the quality of your goods or services. Without quality (or perceived quality, for that matter), loyalty will be gone forever. That’s why we often think of quality customer service as an underappreciated marketing channel. How do you expect to deliver quality in any form with the lowest price in the marketplace?
5. Revenue becomes inconsistent without loyalty: Inconsistent revenue often means your core customer base has walked away, and the primary revenue stream is subject to the turbulence of too many external factors, which threatens your investments for either quality or product innovation. In some situations, it may threaten both.
6. Tight margins turn problems into catastrophes: When you’re unable to focus on quality, loyalty or a combination of the two, shortcomings can snowball and quickly transform into catastrophes. Because catastrophes are often expensive to fix, the tight margins produced by your low prices can make these hurdles insurmountable for your company.
When you stop focusing on price and start focusing on other aspects of your business, you begin to understand what differentiates your brand from the competition. You’re better able to “reframe” the value of your products or services and communicate that value to your target audience. It’s your uniqueness that’s the real differentiator — and the reason customers choose to do business with you over your competitors.
Price will always be a factor in a consumer’s buying decision, but it isn’t the only one. Make a connection and deliver on promises to establish trust. With trust often comes loyalty.
Matt Cronin is a founding partner at House of Kaizen, a digital performance marketing agency.