

Winning on Product, not on Price - iamvictorious
http://iamvictorio.us/post/32128826754/winning-on-product-not-on-price

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csense
Really, your desired point on the price/performance tradeoff depends on the
specific circumstances of your business.

(a) Being able to compete on price means you have to be really hard-nosed
about optimizing every part of your operations to stay lean. Good
relationships with suppliers and competent execution of your strategy are
paramount -- think Walmart.

(b) Competing on product means you have to be able to blow away your
competition. It's easier the smaller your niche is. It's often about having a
talented designer -- Steve Jobs, Shigeru Miyamoto, Notch -- together with a
support team.

A lot of software is easier to compete on product, because (1) the zero-
marginal-cost structure of the industry means that competing on price is a
race to the bottom that will ultimately be won by open source, and (2) a lot
of software is specialized.

Companies that win in (a) tend to be driven by business types who are good at
the stuff they teach in MBA school. Companies that win in (b) tend to be
driven by creative types and have a culture where the creatives' vision is the
core competency, and the business side is seen as more of a support role. The
good news for bootstrap-stage startups is, if you're in category (b), your
business chops don't matter as much; the product can make up for a lot, if
it's good enough.

So if your team is thin on business talent but has a ton of technical talent,
you should use strategy (b). The reverse should use strategy (a) in theory,
but in practice is rare among startups; business types who are good at what
they do tend to pull down very good compensation, and mostly hang around
companies that can afford it. Of course, if you're in YC or funded, you may
have access to business-knowledgeable people; but getting to that point
usually means you already have a great product and a lot of technical talent.

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erikb
I agree with most of your points. You might reconsider your idea about open
source = $0, though. You don't want code, you want your computers to do
something that adds value to your company. So beside the code, you still need
people who understand the code and who understand the problem. And you need to
configure the software to mathc your context. That doesn't come for free. It's
actually so expensive that a lot of companies rather bet on closed source
products with support then on open source + learning it themself, and they are
right to do so. That's why most open source products actually have companies
around them that sell just the know how and support.

The lesson here can be even taken further. Most things that look like $0
actually have hidden costs. Nothing's free in this world.

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rushabh
Open source gets easier to install / use with time (eg Wordpress is a one
click install on any standard hosting service) and it is really free for those
who know to use it.

The problem with open source is that there is little short term incentive to
the developer. But with time I believe Open Source will be a strong option for
many areas like what Khan Academy or One Laptop per Child is for education. So
don't discount it!

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zaidf
Makes sense for your case - however, keep in mind there is plenty of cases
where the innovation _is_ the very ability to offer something for a lower
price. This is more true in manufacturing than software though I wouldn't be
surprised in the long run if it also begins applying to software.

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iamvictorious
Offering a lower price can definitely stem from having a new innovative
manufacturing technique or business model which would certainly give the
innovator a huge advantage.

Apple's iPad is a great example where they got the cost of making a tablet
(though arguably were the first real tablet) to an incredibly low price and
have delivered the best and cheapest product on the market at the time. That
said, look at Amazon's Kindle which is radically cheaper now a few years
later. I suspect not many people would buy it over the iPad if it weren't so
cheap. That's a great advantage for Amazon for selling but I think it says a
lot about Apple that it can charge such a premium for its product that really
anyone else should be able to make from the same core components.

I was really struck by this phenomena when I asked the day of the iPhone 5
announcement if a co-founder (who isn't an apple fan boy) if he was going to
buy the new iphone. He said yes. I asked if he had seen the price yet or read
all the new specs. He replied no. How many companies can convince you to buy a
product you haven't tried or heard the price for? I doubt anyone would say the
same thing of Samsung or Amazon products. Apple definitely puts out the best
product and experience if you measure it from that perspective.

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zaidf
_How many companies can convince you to buy a product you haven't tried or
heard the price for?_

The flip side to this is that the iPhone's lost its marketshare to Android
devices largely because of price initially. It gave competitors a chance to
exist in the market and cater to a huge market that Apple largely ignored.
Lower pricing(with average product at best) gave competitors like Samsung an
entry into the market and today, it's given them a shot to actually compete on
product.

I think it is a dangerous strategy for Apple in the long-term. There are
price-sensitive nations where Apple is barely known and its competitors(such
as Samsung) are dominating in a market Apple had a huge headstart in.

Something similar happened with Apple and Windows.

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notatoad
>To win on product, you have to differentiate

to be clear, you have to differentiate by being _better_. just being different
doesn't count. (I'm looking at you, phone manufacturers)

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skidding
I agree with you, but your argument validates only when you're trying to be
the overall best in a certain market. Niche products are still a safe bet
otherwise.

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kruken
Very much agree that winning on value rather than price is critical,
especially for B2B companies working to establish themselves in the market.
Focusing on price is fraught with peril and impossible to maintain for long.
(Note that cost vs. price is a key distinction here - selling a product that
reduces cost for the customer is great, but that's very different from using
price to differentiate against competitors.) Nailing the solution to a tough
customer problem is a much better formula for sustained growth... not to
mention higher margins.

The allusion to the whole product is a big deal, too, because this is how that
value is perceived your customers. Getting the core functionality right is a
big piece of the puzzle, but I have often been amazed how much importance
customers place on other things like a less painful sales process, service,
support, training, etc. Building a coherent package across several of these
dimensions can be a great way to differentiate in a crowded market and avoid
the slippery slope of discounts.

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erikb
Of course to really beat all the other people at the price margin and still
make plus is a skill not everybody has. cheap is a value like any other, too.

That said, most people do it wrong, when they attempt to do it cheaper. This
might make a false impression about that pricing is the problem, were actually
the people doing it, are what's wrong.

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ashleycutler
I generally agree with this however, it can often go beyond just product. The
old adage of sell on value not on price applies here. Don't underestimate the
power of marketing and sales to be able to really position product
differentiation, service, value, ROI, etc to beat out a lower priced
competitor.

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shasta
And if you can't win on either, win on patents.

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thedrbrian
And come second if you're handy with a photocopier

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stesch
Real news for hackers again. :-/

