04.25.07
Are You Ready For A Slugfest?
A number of consumer electronics stores are in financial trouble because a very large competitor decided to reduce its prices on 42-inch flat-panel televisions.
It is an important question: at what point do your customers no longer need your advice and consulting about what to buy and what to do with it after buying it? If your customers completely understand your products, it would seem that they no longer need your helpful and friendly “advisors” to help them decide what would best meet their needs.
Once that point is reached, your customers no longer need your help, which means that the time is right for a competitor to undercut your pricing and seize your market share. When I was in college, we went on a field trip to Orange County, where we visited a retail nursery (a place that sells plants) that had a wonderfully-successful marketing strategy: they met their competitors’ prices, but also had a large number of exclusives, which were priced quite a bit higher. This higher margin allowed their sales staffers to become both subject experts and near-experts in understanding human nature. They used this combination to become a powerhouse competitor.
As I recall, at this time, they already had a few warehouse-style hardware stores in their area. This company drew visitors and customers from all over Southern California.
At one point, even large specialty retailers like Blockbuster suffered at the hands of Wal-Mart. Since Wal-Mart’s business is diverse, it can afford to underprice its competitors on one or a few kinds of merchandise, making up the difference on other products. Blockbuster could not match the pricing of Wal-Mart, nor could they spread the lower revenue across a wide variety of products.
If you are in business, you will have competitors that are larger, better-financed, and with other areas or locations that enable them to spread the cost of a price war across a larger base. It is not guaranteed that they will choose to use price cuts as their primary weapon, but it is often the way they choose.
You need to think about what your business has to offer. What is your USP? If you had to come up with just one thing that is the reason why it is better to buy from you than from anyone else, what would that thing be? If you do not have an answer to that question, you have not thought about it from the standpoint of your customers.
When there are dozens of businesses in your industry (your competitors) within a fifteen to thirty minute commute from your place of business, there must be a reason why your customers choose you.
There is probably a particular slice of the overall market that choose your business and its products or services. There may be several such slices and those slices may have little or nothing in common. Think about it: do your customers seem to be around the same age? Marital status? Political affilliation? Education level? Are they all in the same zip code?
This isn’t the time to go into Marketing 305 (Principles of Marketing) again. Instead, get yourself a copy of Entrepreneur
You can not depend on government regulators to level the playing field either. Just as one large software company recently changed the minds of the state of Florida in under 24 hours, a large company in your industry might easily convince regulators to allow them to step all over you and then grind you under their feet because you dared to compete with them. Instead, you must go places (into parts of the market) where the big guys will never be able to fit.
