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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Self-Defense Against Business Hijackers

Do you own the patent on your product, service or process? If not, you are in danger of being “knocked off” by a competitor at some point. Chances are that they’ll charge less than you for what appears to be a similar offering.

In my January newsletter, I said

“…there’s really no way for products to be truly unique anymore — at least not for more than a few months. Companies that create technological advancements that customers will pay for usually see copycats coming up right behind them.

“So what do you do in an environment where your advantages can be ripped off so quickly?”

Have you seen those SodaStream commercials on the air recently? Seems like a cool product, right? As someone who knows very little about such things, I also thought it was pretty much a one-of-a-kind product.

Well, earlier this month, I saw knock-off Cuisinart version merchandised right next to the “name brand”…on the SodaStream-branded shelf display (complete with SodaStream video playing on a loop) — for $30 less. In a national retail chain.

I wish I could find the picture I snapped.

SodaStream spends $18 million/year in advertising (according to the most recent figure I could find), including buying for premium shelf space and an in-store video player, only to have Cuisinart undercut them on price and hijack customers at the moment of decision.

How do you think customers will react when they see a competitive product, which could be just as good, for nearly a quarter cheaper?

More importantly, can you see how this applies to your own business? Are you facing competitors who charge less than you? Does their mere existence cost you sales?

How can you protect yourself? Here are a few thoughts.

1) Have better, more resonant marketing. When potential customers form an emotional or mental bond with your product, service or more often your brand, they often look for you — not the other guy– when they’re ready to buy.

2) Offer an insane guarantee and/or service after the sale. Think LifeLock. They offer a $1 million guarantee if identity thieves get their hands on your information. (They’re a good example of strong marketing, too. Remember the commercial where the CEO broadcast his social security number?)

Service after the sale can set you apart from all of your peers. It’s a terrific way neutralize the fear that kills so many sales. When customers buy from anyone else, they’ll be all alone, trying to figure out how to set up, maintain and get the most from their purchase. You can make life easy for them by being there for them.

3) Does your product carry prestige, recognition or affiliation with some desirable group? Compare diamonds and moissanite. They look alike; some will even say that moissanite looks better than diamonds. But everyone knows which is a more desirable symbol.

4) Offer a bundle or bonus. The added value can make all the difference when it’s time to buy. Another idea would be to link your offering with a related product that would complement the purchase. Again, you’re making the consumers life better and easier than it would be if they dealt with the competition.

5) Create implicit doubt in the quality of the competitive service. Be sure to do this carefully and with class.

You could say something like this: “Plumbers at Acme are the only ones certified by the Illinois Board of Health for contamination-free work in residential and commercial buildings.” That means anyone else could be leaving dangerous germs all around your house. How much more would homeowners be willing to pay to protect their family’s safety?

Don’t attack anyone when you’re using a tactic like this, and always be 100% honest.

If you need some help crafting and implementing your own uniqueness, USP Made Easy may be exactly what you’re looking for.

 

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Sharing The Other Side of the Story

Storytelling is a very hot topic right now, and I chimed in from a unique perspective in my December newsletter.

It’s rare that I do this, but I’m making this edition available to the general public. I think it’s that important.

Take a gander at “Storytelling Reconsidered.

My point, as tends to be the case, is this: even when telling your story, IT’S NOT ABOUT YOU.

Enjoy!

Recommended Reading:
lowercase branding – What’s really important when it comes to building an incredible brand?

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lowercase branding

There’s a lot of talk these days about branding (then again, when isn’t there?). There are branding consultants, how-to books and home-study courses, etc. Branding is big business. Brands themselves are big business. Which is why everyone wants to “get it right.” Play this card right, they say, and my company will experience success like never before.

Let me get this out of the way: there is nothing wrong with branding. You absolutely should have a strong brand. In fact, you’re creating a brand whether you know it or not. You might as well be intentional about it and make a good one.

What’s A Brand, Really?

A brand is simply the identity of a company, product or service as perceived by consumers. As we noted, every company has a brand. There are powerful brands like Nike. People around the world instantly recognize their logo. They know their slogan by heart. And their products are held as valuable everywhere. In fact, it is the brand that gives the product it’s heightened perceived value. Having shoes is nice; having Nikes is something special.

Then there are the weaker brands. Sometimes we call them generic. We compare them with “name brands,” as if they don’t have a name. Regardless of their quality or usefulness, we pay less for them and usually want them less. Remember when it was common to hear about children having their shoes stolen right off of their feet? I don’t remember Payless brand shoes ever being on the list of the items taken.

Don’t You HAVE to Capitalize That?

How do you think that the big brands got to be big?

Why is Coca-Cola so popular? How can Starbucks charge so much more for coffee than the competition and still have “enthusiastically satisfied” (that’s Starbucks’ own verbiage) customers during hard economic times?

And more importantly, how can YOU start to do the same thing?

Branding Rule #1: It’s not about you.
Sales and Marketing 101 teaches us that customers don’t want to buy drills, they want holes. Elmer Wheeler says “Sell the sizzle, not the steak.”

The same is true about building a brand. You don’t create a world-class identity by trying to create a world-class identity. Don’t focus on yourself or your business. Concentrate on the people you’re trying to influence. What do people desperately want? How can you give it to them? Can you associate your product with something that people already go crazy for?

Branding Rule #2: Don’t underpromise.
This cliché might be one of the dumbest things I’ve ever heard. I get where people are coming from when they say it, but I’m telling you, it’s dead wrong.

Make the strongest statements you can about the benefits that your audience will get from your buying from you. Why would you under-sell yourself? Why would you water down the truth about your awesomeness? If you follow Branding Rule #1, you have a product or service that genuinely improves people’s lives. You have to get them to buy it for them to experience the improvement, though. You’re doing your prospects a serious disservice by downplaying the good you can do for them.

Never promise more than you can deliver, but don’t shoot yourself in the foot by underpromising either.

If you don’t stand out as the best, the only provider of what you sell, your customers might overlook you and buy from someone less committed to meeting their needs. Don’t let that happen. It’s up to you to make the big promise.

Branding Rule #3: Do overdeliver.
Surprise your customers with how awesome their experience with your company, product or service is. If you promise that they’ll double their Mandarin vocabulary in 30 days by taking your course, delight your patrons by tripling it.

That’s where the magic happens. When people get more than they ask for, they can’t wait to tell someone about their experience. And you quest for world-renown for your brand really takes off.

Commit to making a great product or giving a great service. Don’t focus on getting what you can from your customers. If you want to be the next Mercedes-Benz brand, give ten times more value than you plan to get back from your clients.

You could probably make some good money really quickly by short-changing everyone, cutting corners on quality to maximize profits. But you will never build a sustainable, respectable brand by doing business like that. And you will have traded in your integrity and good name for a quick buck. Sound like a good deal?

Branding Rule #4: Make purposeful statements about who you are as a company.
Your brand is as much about how people identify with you as it is about who you actually are. Maybe more.

Roy Williams wrote in one of his Monday Morning Memos:

“Brands are identity reinforcement, just like art and architecture and music. Brands are a way of shouting ‘This is me!’”

Remember that your brand is only as good as the perception you create.

In most cases, people will not come to the correct conclusions about who you are as a company if you never tell them what to think. Plus, there will never be one coherent brand identity. Everyone will have their own interpretations of your brand.

Here are some thoughts to consider when drafting your brand messaging:

  • Always be truthful
  • You’re talking about yourself, but you still should identify with the customer
  • Tell them who you are and WHY IT MATTERS TO THEM
  • Have one overall message: one thing you stand for, oppose, believe in, or are working toward
  • Encourage interaction. Make your customers part of your “movement”
  • Never be boring. Be bold, be unique
  • Find something only you can say, and say it

Branding Rule #5: Participate in your communities in ways that are aligned to your corporate personality.

That can include everything from throwing concerts or events to feeding the homeless and sponsoring little league teams.

NBA Cares is an outstanding example of getting involved and making a compelling brand statement.

In the online world, you could give away free information or put on special webinars for noteworthy occasions.

This doesn’t have to be charitable giving. Getting involved with people outside of them handing you money is a great way to prove who you are and what you care about.

About the “lowercase” Thing

Did I confuse anyone with the lowercase branding headline?

The point is this. Branding is such a hot topic, and there are so many conversations going on around the subject. Rightly so. My concern is that we’ll begin to focus on creating brands and messages rather than on doing great business.

The customer should be “uppercase,” since they are what really matters. The business should be built around taking care of them. The brand is “lowercase.” The brand doesn’t exist for it’s own pleasure; the brand is about the customer.

Major brands are not formed by putting energy into making a brand, but by companies and individuals that provide outstanding products or services. The brand identity is a gift wrapping of sorts. The gift inside is what deserves more attention. That would be your business.

I’m not saying don’t build your brand. Just don’t put the cart in front of the proverbial horse.

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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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