Stop Playing the Price Game

I am in Toronto visiting friends. Yesterday, I had a really interesting discussion with a fellow who imports household goods, spices, and other things. We were talking about value and brand over price. The gist of the discussion was that North Americans have become convinced that the only way to keep or attract new customers is through lowering price. This might bring in customers, but it also undermines the perceived value of the offering and undermines the brand.

The Wal-Mart impact is being felt in every sector of the economy. Many businesses look to Wal-Mart's success and conclude that they cannot succeed without having the lowest price. There are many ways to show value to the customer. Price is just one.

Consider that there is a continuum between high price, high differentiation and low price, commodity. These are the extremes of the continuum, not our only choices. Between these extremes we have many ways to show increased value--customer service, relationships, partnerships, etc.

It is a good thing to cut costs. But, that should be done to allow the firm to provide value in other ways. It should not be done so that price can be lowered. If it is, the margins are squeezed and the entire market become a war of attrition.

Let's consider Southwest Airlines or Porter Airlines (if you are not familiar with Porter, you should fly them to Toronto from one of the cities they fly from in the US--Chicago, Boston, Newark). Both airlines gained efficiencies by having only one type of place and flying only point-to-point. This means that all staff are qualified on all planes and they do not have to deal with hubs. This speeds flight arrivals and departures. But, at the same time, they used these cost efficiencies to create value differentiation--Porter actually pushes carts with free wine and provides food. Southwest does not charge for bags. These are things that drive up perceived value. But, they also do things that other airlines could do for free but do not--they smile, they act like they enjoy and appreciate having you on board. They make the experience enjoyable. This builds perceived value and increased loyalty.

We have to get control for companies back from the accountants and finance folks who think that everything comes down to price and start looking for ways to enhance perceived value. There are so many ways that companies can do it--it will enhance the brand and, if the entire organization is engaged, it also will grow the reputation.