The folly of competing on price

In raging business competition both the strong and the weak sometimes think that competing on price is the only exit route, especially when the demand is almost stagnant. This folly has ravaged too many businesses that indeed had a long term future. 

A key issue in competing on price is the time factor. When times are tough tweaking price here and there is a done thing. That boils down to the salience of selected transactions that bring the necessary cash-flow and/or customer loyalty. In short term horizon this can be a workable business manoeuvre. When the nearest competitor resorts to same degree of price reduction then the effect is almost neutralized.

An effective business strategy has none of this absurdity. A business strategist keep his eyes over the horizon for a long term where getting the incremental market share is sine quo non during hectic price related business competition. Ostensibly he understands price cutting is a two way sword that can harm both parties if there is continued slashing of price.

At this point, competitors are hooked unconsciously upon lowering the scale of after sales service. Since the latest sale is on deeply discounted price there is no motivation for the sales staff to give the same level of service they delivered in the pre-price cutting times. This fritters towards the financial viability in the downstream. Because lowering price takes off the safety margin that was afforded originally to the firm.

On another template there is road block for future pricing strategy. The chance of raising price in the future for the same product with same features is lost forever. The ripple effects of price cutting cannot be easily surmised at the height of tensed situation when firms are bogged down in mindless business warfare. On the face of it, one sees two businesses are just competing with one another dead heat.

What is not observed is the free fall of the perceived value of the product in the minds of existing customers and any potential ones who might look at the product.  They tend to associate the product as something less valuable now than it was in the past. Once the impression sets in the product loses its market acceptance steadily and only bargain hunters are now hooked on it! 

 

Cheers! 

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist