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Best Price Positioning Does Not Always Mean Best Business Strategy

By Dominic Willett ⋅ ⋅  Email This Post ⋅  Print this post ⋅ Post a comment

I am currently working with a customer out of state on a business analysis. The analysis is a tool that I use to gauge a company’s current position and find out if there strategy has the correct focus based on competitors, suppliers and customers. It is a quick and painless process for the business owner, and it is one of my favorite services that I offer as it allows me to do what I started this business to accomplish - help others understand modern business strategy.

The customer is working within a ‘lowest price’ position currently. The analysis had results that were very common with businesses that are competing on price, especially against big business competitors. The only successful implementation of being the price leader is that you have to be the cost leader. Price leader is a marketing term, cost leader is a strategy term.

While anyone can price their products or services below market price, very few small businesses can survive doing so. While big business may meet the requirements to be a true cost leader, small businesses suffer in the long term while attempting the same strategy. In order to be a true cost leader you must have the following statements be true about your business:

* You need a significant and sustainable cost gap over your competitors. In short you need to be able to buy materials or wages at an advantage over the competition.
* You must have superior knowledge of the specific market you compete in as well as management systems that lead to cost control.
* You will not be able to invoke a differentiation strategy, in other words it is costly to make your product or service so different in comparison to your competition. Differentiation has larger investment requirements to remain ‘different’ or ‘unique’. Remember, this is not the same as marketing yourself as unique. You can still show key reasons why your base should buy from you and not your competitor but to remain effective you must center on the similarities as well and show the price difference.

The bottom line is just that..the bottom line. Cost leaders make their money in quantity not quality. This is not the most glamorous of business strategies, but to make it work you have to understand it. The most important rule of thumb is that if you and your competitors buy materials or wages at the same cost as each other, cost leadership will not work unless it is in the short run. Short run strategies do not work as you never brand your business to your customers, and your systems internally will never gain momentum.

If you can not meet the requirements, then you need to get away from the strategy and look at other ways to position your business. In the future I will post the requirements for a differentiation strategy that most small businesses will find a little more appealing.

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Written by Dominic Willett - Speaker, Author, Consultant - Visit Website
Posted on businessatwar.com

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