Fools. Some days I feel like I’m surrounded:)
I’ve never written about this “little store”, but I think I should because there’s a lesson about companies like WalMart, IBM and such.
Let’s say you’re the owner of the low price general store in town. All the locally-owned retail store owners despise you because you found a way to buy stuff cheaper than they can. As a result, you keep getting bigger and bigger.
Then, someone else comes to town that does what you do, except that they do it a little bit better: Their prices are just a little lower.
Who are you?
Yep, that formerly giant retail monster. The one with the dirty stores, empty shelves and often cheap (even for price-sensitive stuff) merchandise.
You thought I was talking about WalMart, I suspect. Nope.
The point is that competing on price is foolish, if not dangerous.
Why? First off, somehow, someway, someone will figure out a way to have a lower price.
Second reason: This list
Three huge staples in the U.S. retail arena at one time, yet today they are either gone or as good as gone.
No one ever thought Woolworth would be put out of business, but today, they’re gone.
No one ever thought Sears could be beat. Today, they’re about mowers and tools primarily, otherwise marginalized in the retail world in most areas. If it wasn’t for Craftsman tools, would anyone go there anymore?
No one ever thought K-Mart could be beat. They’re too big. No way.
WalMart never believed a word of it.
They all focused on price. Even WalMart does so, at least in their marketing. Fortunately for them, their advantage is more about logistics and business intelligence, much less sheer size.
One difference in WalMart is that they keep trying to get more of your purchasing dollar. They added auto service. Groceries. Florists. Hair cuts. Banking. Insurance. Restaurants. Eye clinics. WalMart has become the mall in many areas.
But still, that price thing looms large and you just can’t do it.
You can’t compete with Wally World on the price of a box of PopTarts and a fanny pack.
You can’t gain serious advantage and loyalty by being the low price leader. Why? Because the shopper looking for the lowest price will always go somewhere else if that somewhere else has the lowest price.
I know people who don’t value their time and will drive all over town for an afternoon, saving 29 cents on a loaf of bread here and $1.42 on a 6 pack of beer there. I suppose if you have nothing else to do that’s fine – but that makes the point: Loyalty and the low-price shopper don’t go hand in hand. If someone will drive across town using $3.29/gallon gas (and their time) to save 29 cents on a $2.00 item, they likely don’t appreciate your service or anything else you do for them.
The low-price shopper follows the price. The low price shopper results in low margins. The low price shopper might prefer to shop at Nordstrom’s, but shops at KMart because they need the lowest price. If Walmart has the lowest price, off they go.
The same thing happens to you.
If you’re a small retailer or service business, you can’t afford to build a business that way. You must build loyalty and provide what will motivate your clientÃ¨le to return time and time again because your products and services are better and because you’ve educated them and proven that the higher price is a good value.
The low price vendor sacrifices margin and gets a less loyal client. If you compete primarily on price, your competition has to do only one thing to steal your customer: lower their price. WalMart says “Well, that was easy. Next victim?”
Compete on something truly meaningful. Don’t set yourself up to get Walmart’d.