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: