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Winning on Product, not on Price

iamvictorio.us

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Re: Winning on Product, not on Price

#11

Post by erikb »

csense wrote: post #9

Really, your desired point on the price/performance tradeoff depends on the specific circumstances of your business. (a) Being able to compete on price means you have to be really hard-nosed about optimizing every part of your operations to stay lean. Good relationships with suppliers and competent execution of your strategy are paramount -- think Walmart. (b) Competing on product means you have to be able to blow aw…

I agree with most of your points. You might reconsider your idea about open source = $0, though. You don't want code, you want your computers to do something that adds value to your company. So beside the code, you still need people who understand the code and who understand the problem. And you need to configure the software to mathc your context. That doesn't come for free. It's actually so expensive that a lot of companies rather bet on closed source products with support then on open source + learning it themself, and they are right to do so. That's why most open source products actually have companies around them that sell just the know how and support.

The lesson here can be even taken further. Most things that look like $0 actually have hidden costs. Nothing's free in this world.

Re: Winning on Product, not on Price

#12

Post by gav »

csense wrote: post #9

Really, your desired point on the price/performance tradeoff depends on the specific circumstances of your business. (a) Being able to compete on price means you have to be really hard-nosed about optimizing every part of your operations to stay lean. Good relationships with suppliers and competent execution of your strategy are paramount -- think Walmart. (b) Competing on product means you have to be able to blow aw…

Note that open-source isn't always a shoo-in for the lowest cost solution.

For any significant software investment the total cost involves: initial purchase price; hardware; installation and (data) migration; integration with existing (or new) systems; ongoing support and maintenance; training and retraining.

In a lot of cases the latter dominate the initial cost.

Re: Winning on Product, not on Price

#13

Post by zaidf »

iamvictorious wrote: post #8
zaidf wrote: post #5

Makes sense for your case - however, keep in mind there is plenty of cases where the innovation is the very ability to offer something for a lower price. This is more true in manufacturing than software though I wouldn't be surprised in the long run if it also begins applying to software.

Offering a lower price can definitely stem from having a new innovative manufacturing technique or business model which would certainly give the innovator a huge advantage. Apple's iPad is a great example where they got the cost of making a tablet (though arguably were the first real tablet) to an incredibly low price and have delivered the best and cheapest product on the market at the time. That said, look at Amazo…

How many companies can convince you to buy a product you haven't tried or heard the price for?

The flip side to this is that the iPhone's lost its marketshare to Android devices largely because of price initially. It gave competitors a chance to exist in the market and cater to a huge market that Apple largely ignored. Lower pricing(with average product at best) gave competitors like Samsung an entry into the market and today, it's given them a shot to actually compete on product.

I think it is a dangerous strategy for Apple in the long-term. There are price-sensitive nations where Apple is barely known and its competitors(such as Samsung) are dominating in a market Apple had a huge headstart in.

Something similar happened with Apple and Windows.

Re: Winning on Product, not on Price

#14

Post by rushabh »

erikb wrote: post #11
csense wrote: post #9

Really, your desired point on the price/performance tradeoff depends on the specific circumstances of your business. (a) Being able to compete on price means you have to be really hard-nosed about optimizing every part of your operations to stay lean. Good relationships with suppliers and competent execution of your strategy are paramount -- think Walmart. (b) Competing on product means you have to be able to blow aw…

I agree with most of your points. You might reconsider your idea about open source = $0, though. You don't want code, you want your computers to do something that adds value to your company. So beside the code, you still need people who understand the code and who understand the problem. And you need to configure the software to mathc your context. That doesn't come for free. It's actually so expensive that a lot of…

Open source gets easier to install / use with time (eg Wordpress is a one click install on any standard hosting service) and it is really free for those who know to use it.

The problem with open source is that there is little short term incentive to the developer. But with time I believe Open Source will be a strong option for many areas like what Khan Academy or One Laptop per Child is for education. So don't discount it!

Re: Winning on Product, not on Price

#16

Post by alanctgardner2 »

iamvictorious wrote: post #8
zaidf wrote: post #5

Makes sense for your case - however, keep in mind there is plenty of cases where the innovation is the very ability to offer something for a lower price. This is more true in manufacturing than software though I wouldn't be surprised in the long run if it also begins applying to software.

Offering a lower price can definitely stem from having a new innovative manufacturing technique or business model which would certainly give the innovator a huge advantage. Apple's iPad is a great example where they got the cost of making a tablet (though arguably were the first real tablet) to an incredibly low price and have delivered the best and cheapest product on the market at the time. That said, look at Amazo…

There is a danger to what Apple has as well, in that with every revision they reduce how much they can innovate. Users are willing to buy an iPhone 5 because all the changes are incremental. If the iPhone 6 has a new UI paradigm, Apple will undo a lot of what they've created. If Apple upped the price to a thousand dollars (or lowered it and compromised on part quality) your co-founder would have thought twice.

My point being, every time Apple innovates significantly it throws away a lot of consumer good-will, because it has to rebrand everything. So far the strength of the overall Apple brand has kept this strategy together, but after a few more mis-steps like iOS 6 people might start hesitating before they instinctively 'buy Apple'.

Re: Winning on Product, not on Price

#17

Post by kruken »

Very much agree that winning on value rather than price is critical, especially for B2B companies working to establish themselves in the market. Focusing on price is fraught with peril and impossible to maintain for long. (Note that cost vs. price is a key distinction here - selling a product that reduces cost for the customer is great, but that's very different from using price to differentiate against competitors.) Nailing the solution to a tough customer problem is a much better formula for sustained growth... not to mention higher margins.

The allusion to the whole product is a big deal, too, because this is how that value is perceived your customers. Getting the core functionality right is a big piece of the puzzle, but I have often been amazed how much importance customers place on other things like a less painful sales process, service, support, training, etc. Building a coherent package across several of these dimensions can be a great way to differentiate in a crowded market and avoid the slippery slope of discounts.

Re: Winning on Product, not on Price

#18

Post by Evbn »

gav wrote: post #12
csense wrote: post #9

Really, your desired point on the price/performance tradeoff depends on the specific circumstances of your business. (a) Being able to compete on price means you have to be really hard-nosed about optimizing every part of your operations to stay lean. Good relationships with suppliers and competent execution of your strategy are paramount -- think Walmart. (b) Competing on product means you have to be able to blow aw…

Note that open-source isn't always a shoo-in for the lowest cost solution. For any significant software investment the total cost involves: initial purchase price; hardware; installation and (data) migration; integration with existing (or new) systems; ongoing support and maintenance; training and retraining. In a lot of cases the latter dominate the initial cost.

Open source is not the same gratis, so there is non reason to suspect it would be lowest cost for any non-appliance product.

But open source has a free market of maintenance industry, instead of a monopoly, which pushes prices down in general.

Re: Winning on Product, not on Price

#19

Post by Evbn »

iamvictorious wrote: post #8
zaidf wrote: post #5

Makes sense for your case - however, keep in mind there is plenty of cases where the innovation is the very ability to offer something for a lower price. This is more true in manufacturing than software though I wouldn't be surprised in the long run if it also begins applying to software.

Offering a lower price can definitely stem from having a new innovative manufacturing technique or business model which would certainly give the innovator a huge advantage. Apple's iPad is a great example where they got the cost of making a tablet (though arguably were the first real tablet) to an incredibly low price and have delivered the best and cheapest product on the market at the time. That said, look at Amazo…

That is a bit backwards. The Kindle Fire is much lesser hardware than iPad. iPad is inexpensive at wholesale BoM because Apple has amazing supply chain in hardware. Amazon has efficoency in logistics but not in components.

Apple wins in profits because it keeps more per unit (including the App Store cut), even at then same retail price for competitors with the same BoM. Like Coke does.

Re: Winning on Product, not on Price

#20

Post by ashleycutler »

I generally agree with this however, it can often go beyond just product. The old adage of sell on value not on price applies here. Don't underestimate the power of marketing and sales to be able to really position product differentiation, service, value, ROI, etc to beat out a lower priced competitor.
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