Publisher's Note

June 20, 2006
Companies selling deeply discounted products do so from a position of weakness, not strength.

All of us have heard, “I can get this from your competitor for half that price.” It is frustrating to hear this, especially when you know your product quality is higher than your competitor’s and significantly better suited to your customer’s needs. Whenever I hear of something being offered for 50 percent off, I know the products being sold have been around awhile, the products are of very little value or the company is in financial trouble.

We all formulate competitive pricing based on cost to buy or to manufacture the product, overhead, taxes, utilities, shipping, labor and adequate profit margin. If you sell ground power units for instance, the cost of raw materials has not gone down recently—in fact, they are at a high; the cost of fuel to deliver the materials to you is also at a high. It is likely that your work force isn’t being paid below market value and your company has a mortgage or building upkeep. Your price also covers the value and service you offer. So how can some competitors offer a similar product for up to 50 percent less? Are you doing something wrong? No. You’re more likely doing everything right—and you have your competitor on the defensive.

Airline ticket prices are a perfect example. With fuel prices and raw materials prices at an all-time high, bargaining with labor unions a continuing struggle and passenger traffic increasing, doesn’t it make sense that ticket prices would be up?

Companies selling deeply discounted products do so from a position of weakness, not strength. Very likely, they are experiencing a cash flow problem requiring them to generate a lot of cash quickly. But it doesn’t pay the bills nor does it give them money to support and retain their customers and grow their business.

On the contrary, rate cutters only worsen their financial plight and cut themselves right out of competition. After offering 50 percent off, will a customer ever pay full price again?

You may lose a sale or two initially by sticking to your price, but the customers will come back. They’ll need quality service and the competition won’t have the manpower or the facility to meet those demands. The customer will need parts, but the competition won’t have the money for inventory or the convenience of online purchasing and 24-hour parts availability. Your competitor’s people will all be looking to work for a different company that can afford to pay them a deserving wage.

Publishing comes across the same problem; there are always those companies willing to sell advertising for less. By and large, the cost of paper, postage and printing are very similar from publication to publication. Advertising only works when it’s effective. You can certainly find a “great deal” on ad space, but if the publication lacks the information your customers need and use to run their businesses and no one is reading, who will notice the ad, no matter how cheap you got it? Other publications may have more pages or glossier paper in their issues, but if the content is not the most compelling to the businesses that use the publication, who cares? Holding your price is the only way to consistently and continually deliver value.

Thank you for reading,

Holly Hoffer