2 marketing strategies to escape the most common business trap of all

Something extremely common for small businesses is wanting to be the best on everything – to have the best product, with the best quality and the best service at the lowest price.

There are two problems with that.

1. Unless you have your own manufacturer or patents on a state of the art cost saving manufacturing process, odds are your costs will be very similar, if not higher, than those of your competitors. Hence, it will not be commercially viable to sink resources into being the best at everything. Fact is that someone else will be able to be better than you at something. If not, you will go bankrupt due to high costs.

2. There is a perception among people that expensive means high quality, while inexpensive means the opposite. There’s a reason behind the expression “you get what you pay for”.

How to avoid this trap?

That’s what you’ll be able to do in a bit.

 

Two primary marketing strategies

As mentioned in a previous article, there are two primary marketing strategies that are commercially sound.
    1. The low-price strategy
    2. The be-different strategy

Keep reading for more details.

 

The low-price strategy

This strategy consists in trying to at all times have the lowest possible price.

The assumption is that the customers will buy based exclusively on price. There are indeed a lot of people like that, so this could be a good strategy for some companies and some markets.

A low-price strategy will in most cases lead to a larger volume of products moved. The higher volume means that the prices from the manufacturers can be pushed further down. You get the benefits of economies of scale, that is the more you make, the lower the costs. 

An added benefit, believe it or not, is that the expectations for quality, service etc is lower than when the price is high.

Why is that a benefit?

Because it reduces your costs.

Low costs is a prerequisite for low prices. Both variable costs (products) and fixed costs (rent, electricity, wages etc). Have costs that are too high, and you’ll no longer be able to be the cheapest.

That’s where the primary con of going with a low-price strategy comes – the vulnerability towards competitors is huge. The moment someone else manages to reduce their costs more, they will also be able to reduce the price.

This leads us to another challenge with a low-price strategy, namely loyalty. Still assuming the clients are only after the lowest price, they will switch brands whenever they find a cheaper price somewhere else.

Naturally, a low-price strategy will also limit your margins quite substantially. It all comes down to volumes.

Working with a low-price strategy can be worthwhile, and even a very profitable strategy, but it’s balancing on a knife’s edge, and usually best left to the big enterprises, or alternatively web shops.

 

The be-different strategy

The be-different, or differentiation, strategy basically means just that – being different than the competitors.

In some way your business needs to be seen different than the rest. You need to offer something different.

Managing that, you will benefit from a higher customer loyalty, which basically means it will be more difficult for them to choose another provider next time they are looking for what you offer.

As the clients looking for something different, or better if you will, aren’t usually that worried about getting the lowest price available (sometimes the opposite can be true), your margins could, and should, also be substantially higher.

Additionally, the sensitivity to volumes sold goes down due to the higher margin.

On the flip side, and for the same reason, the volumes sold are normally reduced, which also leads to higher cost per unit.

 

When to use which strategy?

The low-price strategy is most widely used for products that have been on the market for some time, where products and brands are increasingly similar and when the cost per unit is low.

This strategy can also be useful if you want to quickly gain market share. Be aware though, that it might be difficult to raise the prices afterwards.

The be-different strategy on the other hand, is great when completely new products and services are introduced to a market, or when you just don’t have the resources to pursue the big volumes.

This strategy is also the most viable when working with niche markets, primarily due to the size of these markets.

The target is to find out what your potential clients value t, then go after that. Find out if it it’s currently being offered by your competitors. If it’s not, and the benefit is sufficiently  high, implement it.

In order to get there, a good understanding of your market is  vital. A market analysis is a good place to start.

 

How to be different

Just about anything can be used to be different. One of the most common is service.

Providing service that manages to establish a connection with your clients, can often be enough for them to keep coming back.

Other points where you could be different could be the atmosphere your locations (think Starbucks), you could offer products with a quality that outperforms anything else on the market, (Mercedes), products so exclusive only a few can get a hold of them (Ferrari), it could be something that comes with a specific image (Apple), etc etc.

As long as the benefits are valued by clients, they can be spun as something that differentiates you from the pack – increasing your brand loyalty,  margins and chance for success.

Don’t be like everyone else – be different!

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