The Low Cost Leader’s Precarious Position

Competing on price is almost always a dumb idea. In every case I can think of, it makes more sense to differentiate in ways other than being the cheapest place in town.

I was given the opportunity to share some of my thoughts on the futility and danger of price competition (and the fear that causes business owners to adopt that kind of pricing strategy) over at the One Hour Startup blog. There are 3 articles; I hope you check them out. The feedback has been excellent.

[[ Update: The One Hour Startup blog is being merged with NinjaHobo. These articles are no longer hosted there. ]]

3 Alternatives to Competing on Price – What Dominoes Pizza, Babiators and iPhone lovers can teach us about staying out of the Bermuda Triangle of commoditization, where the only way to win is to be slash prices.

The Wife-Approved Pricing Strategy – If price is the main way to convince a would-be customer to buy, why do people regularly pay premium prices for some products? Here’s an example from my own wife. Oh, and Aston Martin.

Pick Your Battles Strategically, or All’s Fair When Avoiding Price Wars“…what main characteristic did David possess that allowed him to defeat Goliath, who was bigger, stronger and more heavily armed? Most people will say that it was his agility or speed…More important than these things, though, was his willingness and ability to choose the terms of the fight…When your small businesses square off against entrenched competitors… ones that are bigger, stronger, better-known and better-equipped than you… you can learn a few things from the young warrior David.”

While we’re on the subject, observe Chuck McKay as he destroys the low-cost leader’s argument in 33 seconds:

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The Ophiuchus Effect

Facebook and Twitter were abuzz this week with rumors that a mysterious 13th sign called Ophiuchus has been added to the zodiac. As the “news” went viral, emotions ran high. You’d have thought that World War III had been declared by the way some people reacted.

Now, I’m not into astrology, but all the commotion surrounding this ordeal can give us some valuable business insight.

Peter Drucker said that “The purpose of business is to create a customer.” No matter what industry you’re in, your product or service is all about people. The dynamic that generated such a strong emotional reaction with so many people can also have a profound impact on your customers and prospects.

What’s Your Sign?

The primary reason for the stir surrounding this topic is that it strikes directly at the way in which many people identify themselves.

The mind automatically moves into self-defense mode when confronted with any perceived threat to one’s view of the world and his place in it. If you’ve ever had a disagreement with someone about religion, politics, or even sports teams, you know this is true.

Many people take their zodiac signs seriously.  Their identification comprises a major part of how they think about themselves and the world around them.

Millions check their horoscopes as part of their daily ritual. Important decisions are often made based on what they read. Every newspaper has an astrology section. And there are countless places to check horoscopes online and even on cell phones.

The idea of changing this way of thinking has proven to be earth-shaking.

Every interested individual is forced to ask the question, “Am I what I have always considered myself to be?

It’s the same reaction that people have when they find out that they were adopted. Everything they think they know about themselves is challenged.

Putting the ‘Ophiuchus Effect’ to Work

What are the key lessons you can take away from this phenomenon and apply immediately to your business?

1. One’s perception of who he is forms the very foundation of every choice he makes, including purchasing decisions. No one buys from you because of who you are. They buy what they buy because of who they are.

2. The main reason people form connections to certain products, services and brands is because they tie into how they think of themselves.

Apple shines in this area. Their products and services appeal strongly to those who consider themselves to be creative, intelligent, free-spirited and cutting-edge. Apple has created a cult-like following by participating in customers’ self expression.

How do your customers think about themselves? How can you fit your business into these parts of their lives?

3. People are firmly attached to their own personal categories. You need to know how your customers and potential customers categorize themselves. If you don’t know, find out immediately. Think about the way Democrats and Republicans “brand” themselves. The concepts of “liberalism” and “conservatism” carry powerful emotional ties and fierce (often blind) loyalty. You can use the same strategy to build bonds with your audience.

4. It may be possible to create a category for your business, but it is much easier to become associated with what your customers and prospects already love. Tommy Bahama is a good example. The lifestyle of perpetual tropical vacation is one that certain individuals aspire to. Those people will naturally relate to products like the ones that Tommy Bahama offers.

Make a bold statement of who you are as a company. You will attract the kind of customers you want to do business with. Lukewarm relationships will decrease proportionally to the strength and specificity of the stand you take. Instead, you’ll form passionate, long-term relationships.

5.  Affirming the worldview of your customers and connecting with their categories they identify with will help build instant rapport and trust. You are “one of them!” As such, they will feel that they can trust you and relate with you. They believe that you understand them and their needs.

Take time to get to know how your customers view the world. Find ways to affirm their way of thinking. You’ll discover your interactions with them will be more beneficial both for your business and them.

The addition of Ophiuchus to the zodiac may be the latest tall tale, but the emotional reactions are no myth. The psychology is real and powerful. Apply the lessons this event has taught you; your business may never be the same.

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