
Competing with lower prices is stupid - blewis
http://www.onesock.net/2011/08/its-always-going-to-be-more-than-lower-prices/
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ansy
"Competing with lower margins is stupid"

Fixed that for you. If you can have lower prices with the same or higher
margins that's called an epic win.

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MrDutton
This guy is really missing the point. Fixed costs aren't just overhead -
they're _fixed_. Even if you decided to stop selling, you'll likely still be
paying them (e.g. a lease on a building). If times are tough, it still makes
sense to sell below cost _but above variable cost_ to reduce the sting of the
fixed costs. If you want more details, read a micro 101 textbook.

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hollerith
A managerial-accounting-101 textbook would also suffice.

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lsc
Sure, all businesses prefer to keep the customers who don't care about price;
but you know what? there is rather a lot of competition for those customers,
because all businesses prefer those customers. This means that instead of
spending on infrastructure, you will spend on sales.

I mean, depending on how good you are at sales, you might still come out
ahead, or you might not. All I'm saying is that the top end of every market
I've seen is just as competitive as the bottom end, and you are constantly
defending yourself from newcomers.

Now, in my experience, this manifests itself on the top end as being very
difficult to break in to the market. PG has some quote about how you might be
able to out-engineer Oracle, but you will never be able to out-sales Oracle.
Of course, if you do break in to the top end, it's usually a plum place to be;
even after paying exorbitant sales commissions, you are usually sitting on a
large margin. But damn, it's hard to break in.

On the bottom end of the market? My experience has been that it's much easier
to break in. I mean, yeah, margins are much lower, but marketing and sales
become almost trivialities if you are dramatically cheaper than the other
guys.

A traditional strategy, especially in the infrastructure world, is to break in
to the market on the low end; build credibility and a customer base, and
slowly float in to higher-end markets. This is especially easy with
infrastructure because your costs are always falling. Simply double the
capacity you provide per dollar less often than once every two and a half
years, and you are raising your prices.

Really, I think it's a fairly good strategy.

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iuguy
I completely disagree, and so does Ryanair.

Competing on price is entirely possible and feasible. What it boils down to is
understanding how that affects your positioning (i.e. being known to compete
on price) and how that affects your value proposition (if your only value add
is price, then you're commoditising your productivity).

To put it another way, Ryanair compete on price and routinely gouge their
customers, but they still have them. EasyJet competed initially on price
without (initially) gouging customers and took large sections of the UK
domestic and short-haul business market. British Airways are now struggling to
keep afloat as their cost structure is no longer competitive.

If you're going to compete on price you need to have some very rational and
thought out plans as to how you intend to compete on price and for how long.
When we started doing penetration tests in Local Authorities at Mandalorian
(where Local Authorities have been told to cut around %20 in costs overall) we
deliberately sold at a lower rate in order to capture specific key councils in
specific regions, so we could use them as case studies to go after the rest in
that region. It didn't fundamentally affect us (other than not being sexy
work) as what we lost in profit we made up for in volume. Now we have
sufficient presence in that market to bring our prices back up to what the
market will bear, and we have a good pricing strategy to boot with a low cost
base.

At 44Con we originally didn't have a hotel to host the event (or speakers for
that matter), but needed to raise funds for the deposit. We started selling
early bird tickets at a discounted rate in order to raise funds instead of
taking a loan from the bank, and it was much more successful. That, combined
with sponsor funding has meant that we'll be in a better position next year to
enter venue negotiations for the next 44Con.

The bottom line is that as a startup you won't have a brand and competing on
price is a potential route to revenue while you have a low cost base. If
you're close to ramen profitable but need revenue quickly, lowering your
prices can work as a strategy providing your volume increases and you know
what your costs are (and aren't making a loss in the process, at least unless
you have cash to burn). Competing on pricing in an established market is
absolutely the right thing to do and the easiest way to disrupt while your MVP
is still being built or has only just shipped.

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patrocles
_Blatant Generalizations Are Awesome_

Use absolutist terms when blogging about something. Uncritical readers will
cheer you for your clarity.

Everyone else will be able to find at least one thing wrong with your post.

Is this the optimal model to generate participatory comments / game voting
based news sites?

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bugsy
I find references to "resource" in general to be unnerving and a bit offensive
when it refers to a member of the human race. When I hear about "buying
another resource" meaning hiring an expert, it really starts to sound like
some strange form of slavery, humans being bought and sold like pigs.

~~~
gvb
Well, that is the whole purpose of the Human Resource (HR) department, to
treat humans as resources to be bought, sold, and manipulated.

FWIIW, I and several other engineers left a large company with all the
standard large company HR BS for a small company. When the small company
proposed implementing performance appraisals, I lead a court revolt based on
the following article:

[http://www.entrepreneur.com/humanresources/employeemanagemen...](http://www.entrepreneur.com/humanresources/employeemanagementcolumnistdavidjavitch/article41908.html)

My email to my boss:

"[T]hey are a way to document poor performance-in other words, a step in the
firing process."

Bingo. Henceforth I will consider a (big company style) performance
_appraisal_ the equivalent of a "pink slip" - notice of the company's intent
to fire me.

On the other hand, I will welcome an open and honest discussion of my
performance at any time. I would expect a more substantial discussion
periodically (at least yearly), preferably with the openness and honesty aided
by judicious application of beer.

P.S. "Some of us" were BSing about this this afternoon and came up with a good
analogy... You wouldn't do a "yearly performance appraisal" with your son,
once a year beating the tar out of him for all the bad things he did and then
giving him a gumdrop for the good things.

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arnoldwh
I think the author misses the point that lower prices can actually be an
incredible strategic advantage as long as you have the business model that
supports it. You only need to look at a business model like ikea or wal-mart
to see this in action. It also creates a Nice barrier to entry as the scale
and experience you need in order to achieve thst low cost base is often
impossible for new entrants unless some sort of disruption happens.

One way to prevent some sort of disruption in a business is to make it so
cheap that it's no longer worth the time and effort to threaten your
business...

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tintin
I think the title is a little misleading. He says: _"Cutting costs and only
competing on price is a death spiral."_. He is talking about competing only on
price. Ikea is not only competing on price but also on quality.

Making your product/service very cheap is a death spiral when it misses
quality. Take a look at the very cheap Chinese Android tablets. They are so
cheap it's unbelievable. But after half an hour they run out of power. You
have to push the screen in half to make it responsive. That is a death spiral
and not a threat to other businesses.

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forensic
He sounds like an amateur rent-seeker.

