Welcome to the first edition of our brand new weekly blog series, Marketing Myths. Each week’s installment of Marketing Myths will aim to bust a commonly held belief about marketing.
This week’s myth = Low Price Wins
Too often, companies decide that in order to compete, in order to attract new customers and scale up, they need to drop their prices. They need to have the lowest prices on the market.
But the “low price wins” mindset is too often wrong. Let’s try to understand why.
First, it takes a rare combination of factors to truly succeed in a low-price strategy. Successfully offering low prices and remaining profitable takes focus and energy, so much so that the companies that do it usually approached the market that way from day one (Walmart), take advantage of high growth rates and economies of scale, are uber-efficient, focus all their marketing on price and never stray too far from that message anywhere in the organization.
Second, if you have a value proposition based on lower prices, you leave yourself open to competition. Other companies can match your prices, forcing you to either adapt to lower your prices even further, eating into already small margins, in a race to the bottom. Or you might decide that you need to raise prices to stay competitive, which is very difficult to do when your brand is built on low prices.
In most industries, the lowest price doesn’t win. The best value does. The major difference there is the question consumers will ask – not “who’s the cheapest”, but “who over the biggest benefits for the lowest price?” Think of the value you offer relative to your competitors as the benefits minus the price your consumers will pay.
To set yourself apart, you can offer better service. You can offer better products. You can be quicker, friendlier, easier, or simply target a different market of consumers.
Very few companies are able to be successful competing on prices alone. Better to find something you excel at and charge a premium for it.
Stay tuned next week for another myth. If you have a marketing myth you’d like me to bust, add it in the comments below.