Competing with lower prices is stupid
onesock.net
Competing with lower prices is stupid
1–10 of 12 posts
Re: Competing with lower prices is stupid
#2"Competing with lower margins is stupid"
Fixed that for you. If you can have lower prices with the same or higher margins that's called an epic win.
Re: Competing with lower prices is stupid
#3This guy is really missing the point. Fixed costs aren't just overhead - they're fixed. Even if you decided to stop selling, you'll likely still be paying them (e.g. a lease on a building). If times are tough, it still makes sense to sell below cost but above variable cost to reduce the sting of the fixed costs. If you want more details, read a micro 101 textbook.
Re: Competing with lower prices is stupid
#4This guy is really missing the point. Fixed costs aren't just overhead - they're fixed . Even if you decided to stop selling, you'll likely still be paying them (e.g. a lease on a building). If times are tough, it still makes sense to sell below cost but above variable cost to reduce the sting of the fixed costs. If you want more details, read a micro 101 textbook.
A managerial-accounting-101 textbook would also suffice.
Re: Competing with lower prices is stupid
#5I think the author misses the point that lower prices can actually be an incredible strategic advantage as long as you have the business model that supports it. You only need to look at a business model like ikea or wal-mart to see this in action. It also creates a Nice barrier to entry as the scale and experience you need in order to achieve thst low cost base is often impossible for new entrants unless some sort of disruption happens.
One way to prevent some sort of disruption in a business is to make it so cheap that it's no longer worth the time and effort to threaten your business...
Re: Competing with lower prices is stupid
#6He sounds like an amateur rent-seeker.
Re: Competing with lower prices is stupid
#7Blatant Generalizations Are Awesome
Use absolutist terms when blogging about something. Uncritical readers will cheer you for your clarity.
Everyone else will be able to find at least one thing wrong with your post.
Is this the optimal model to generate participatory comments / game voting based news sites?
Re: Competing with lower prices is stupid
#8I find references to "resource" in general to be unnerving and a bit offensive when it refers to a member of the human race. When I hear about "buying another resource" meaning hiring an expert, it really starts to sound like some strange form of slavery, humans being bought and sold like pigs.
Re: Competing with lower prices is stupid
#9I think the author misses the point that lower prices can actually be an incredible strategic advantage as long as you have the business model that supports it. You only need to look at a business model like ikea or wal-mart to see this in action. It also creates a Nice barrier to entry as the scale and experience you need in order to achieve thst low cost base is often impossible for new entrants unless some sort of…
I think the title is a little misleading. He says: "Cutting costs and only competing on price is a death spiral.". He is talking about competing only on price. Ikea is not only competing on price but also on quality.
Making your product/service very cheap is a death spiral when it misses quality. Take a look at the very cheap Chinese Android tablets. They are so cheap it's unbelievable. But after half an hour they run out of power. You have to push the screen in half to make it responsive. That is a death spiral and not a threat to other businesses.
Re: Competing with lower prices is stupid
#10Sure, all businesses prefer to keep the customers who don't care about price; but you know what? there is rather a lot of competition for those customers, because all businesses prefer those customers. This means that instead of spending on infrastructure, you will spend on sales.
I mean, depending on how good you are at sales, you might still come out ahead, or you might not. All I'm saying is that the top end of every market I've seen is just as competitive as the bottom end, and you are constantly defending yourself from newcomers.
Now, in my experience, this manifests itself on the top end as being very difficult to break in to the market. PG has some quote about how you might be able to out-engineer Oracle, but you will never be able to out-sales Oracle. Of course, if you do break in to the top end, it's usually a plum place to be; even after paying exorbitant sales commissions, you are usually sitting on a large margin. But damn, it's hard to break in.
On the bottom end of the market? My experience has been that it's much easier to break in. I mean, yeah, margins are much lower, but marketing and sales become almost trivialities if you are dramatically cheaper than the other guys.
A traditional strategy, especially in the infrastructure world, is to break in to the market on the low end; build credibility and a customer base, and slowly float in to higher-end markets. This is especially easy with infrastructure because your costs are always falling. Simply double the capacity you provide per dollar less often than once every two and a half years, and you are raising your prices.
Really, I think it's a fairly good strategy.