THE TYRANNY OF LOWEST PRICE

 

Lowering the price is a one-directional, single-axis choice. Either it’s cheaper or it’s not.

At first, the process of lowering your price involves smart efficiencies. It forces hard choices that lead to better outcomes.

Over time, though, in a competitive market, the quest for the bottom leads to brutality. The brutality of harming your suppliers, the brutality of compromising your morals and your mission. Someone else is always willing to go a penny lower than you are, and to compete, your choices get ever more limited.

The problem with the race to the bottom is that you might win. Even worse, you might come in second.

To cut the price a dollar on that ebook or ten dollars on that plane ticket (discounts that few, in the absence of comparison, would notice very much) you have to slash the way things are edited, or people are trained or safety is ensured. You have to scrimp on the culture, on how people are treated. You have to be willing to be less caring or more draconian than the other guy.

Every great brand (even those with low prices) is known for something other than how cheap they are.

Henry Ford earned his early success by using the ideas of mass production and interchangeable parts in a magnificent race to the most efficient car manufacturing system ever. But then, he and his team learned that people didn’t actually want the cheapest car. They wanted a car they could be proud of, they wanted a car that was a bit safer, a bit more stylish, a car built by people who earned a wage that made them contributors to the community.

In the long run, to be the cheapest is a refuge for people who don’t have the flair to design something worth paying for, who don’t have the guts to point to their product or their service and say, “this isn’t the cheapest, but it’s worth it.”

 

Steve Blank

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