Better vs Cheaper
When launching a new business, there’s a big decision to be made: Are we going to be better than the competition, or cheaper than the competition?
It’s a huge call, because it’s the basis for your value proposition, your marketing and your pricing. It could make or break your whole plan.
Seth Godin has a great example in his audiobook Leap First:
"If we keep trying to figure out how to be competent for cheaper, we're in a race to the bottom. And the problem with a race to the bottom is that you might win.
But you probably won't, you'll probably come second, which is even worse.
The alternative is to race to the top, and the way you get there is by becoming meaningful"
The reason we have to decide upfront is because each strategy needs to be handled differently.
If you want to be better...
Highlight the increases in quality of life. Don’t talk about what the product is, talk about what does for the user. Does it save them time? Increase their social standing? Bring them more joy?
E.g. Qantas advertise the feeling of “Home” and reconnection with your family. Apple show the lifestyle benefits of their products, rather than talking about price.
Choose the right price points, based on your customer. Learn about the “Tipping Points” where your customers flinch and walk away. This is based on their frame of reference, and is not a rational economic decision.
E.g. They may be willing to spend $200 on a bottle of wine, but not $8 on a coffee. Maybe they will spend $350 online, but hesitate at the extra $10 for shipping.
Make performance comparisons. If your offer is better, give a visual or numerical demonstration as to exactly why it’s worth paying extra.
E.g. Duracell constantly advertising that they last 3x longer than Eveready. Cleaning products show side-by-side comparisons of their product vs the cheaper competitor.
Disdain the cheap. Many high end products either lament or mock their low priced competitors. This can tie in with the performance comparison idea, or can be an attempt to dismiss the cheaper brands to avoid direct comparison.
E.g. Tyre companies raising doubts about the safety of lower priced brands, or Yellow Pages and their Not Happy Jan campaign.
Pay attention to all elements of the experience. This means the packaging, the unboxing, the customer service, the receipt, the warranty, all of it. Special attention needs to be paid in the areas where customers are looking:
E.g. When servicing your car, a dealership puts extra effort into the car wash/cleaning - it’s the one visual difference a customer will notice. Brands like Nespresso and Bose put a heavy emphasis on the beauty of their packaging. Netflix has not just good content, but an easy to navigate website that makes personalised recommendations.
Avoid advertising the price. Why do you think fancy restaurants hide the bill in a black leather folder? Or why high end stores don’t talk price until the customer is ready to buy? The aim is to pump up the value before the price is mentioned, so that it feels like a worthy trade.
E.g. Lamborghini don’t display their prices on billboards, and Ferrari don’t advertise at all. Infomercials restate the benefits over and over again before mentioning the cost of the steam mop/ab swing.
If you want to be cheaper...
Focus on volumes. Your business model probably requires a lot of sales to compensate for low margins. If you’re hyper focused on your sales volumes, you’ll avoid going bankrupt, and will delight more and more customers who will rave about your low prices.
E.g. Costco don’t make much money on each product, but they’re militant about signing up as many members as possible.
Explain the secret of your low prices. People are right to be sceptical, and be suspicious of an offer that’s too good to be true. If you let them in on your “secret”, e.g. no middleman, buying in bulk, no commissions, factory clearance, new technology, or even a shipping error, that suspicion goes away.
E.g. Bingle insurance highlighting that they are cheap because it’s all done by computer. Ryanair/Jetstar highlight how you only pay for what you use.
Ridicule the expensive. Make fun of the pretentious brands that charge too much, and remove the luxury of paying more for a basic product.
E.g. Ford mock the Porsche Cayenne and its drivers. Coles and their “Just Sayin’” campaign highlights how much their competitors charge.
Give permission/remove guilt. By explaining why you’re cheap, and poking fun at the upmarket labels, you can begin to remove the guilt attached to buying cheaper products/services, especially when the customer is buying for someone else.
E.g. Aldi’s clever advertising of their French Champagne and Scotch Whiskey.
Avoid a price war. This is the race to the bottom – and nobody wins. There’s a diminishing return on discounts, eventually customers stop caring. If you’re a commodity product, e.g petrol, insurance or bottled water, try and become the preferred cheap brand, rather than the cheapest.
E.g. BP and their fuel card, Pump and their bottle design, AAMI and the reliability of their team.
Understand your customer’s tradeoffs. Know your customer inside out, so that you can gauge which things are essential, and which are optional. That allows you to design products that tick the boxes, while removing the extras that aren’t important.
E.g. IKEA trade off low prices for self-assembly, and most customers love it. Book Depository trade off low prices for a delay while the book is shipped.
What about for Social Enterprises?
Most Social Enterprises follow Seth’s advice, and focus on delivering more instead of charging less.
Look at Toms shoes - $70 for something pretty basic, but with a better story than their competitors.
Look at Who Gives A Crap – more expensive than Kleenex, but certainly with nicer packaging and a remarkable name.
Look at S’Well - $59 is a lot for a water bottle, but it’s undeniably beautiful.
All three are brands that can be functionally replaced by something cheaper, but they’re not trying to be just a product. In the eyes of their customers, similar products hold nowhere near the value that comes from the story and social impact of the company.
Get good at being better, or get good at being cheaper. If you can’t decide which one to pursue, go and ask your customer.
If you’re interested in this topic, I highly recommend All Marketers Are Liars by Seth Godin, and Lovemarks by Kevin Roberts.