demonstrate added value always and especially when you do not want to compete on price
This is the fifth of 10 ‘BEST OF THOUGHTS’ from the more than 200 THOUGHTS published in 2018.
Competing on price has long been a characteristic of commodity marketing. It is now becoming increasingly common for brands. Despite this trend, most businesses would prefer not to compete on price, and research suggests that it is often unnecessary. Jeff Bezos, CEO of Amazon, suggests that the best way to avoid focusing on price is to understand the customer and to use that understanding to drive brand loyalty.
This THOUGHT considers strategies that might be implemented to avoid competing on price.
A 2017 survey found that 64% of customers cite shared values as a reason for purchasing a particular brand. Research has demonstrated, time and again, that consumers prefer to buy a brand, or buy from a business, that shares their life values. They prefer not to buy from a business that does not share their values. This is highlighted in the book by Roy Spence – ‘It’s not what you sell, but what you stand for’.
When values are shared, they represent added value and reduce the propensity for price alone to be the driver of purchase decisions.
When UBER launched, taxi companies viewed UBER drivers as unfair competition as they did not have to pay for taxi licences, which could cost hundreds of thousands of dollars at the time. Clearly, this was true, and it allowed UBER to charge lower prices than taxis. That said, research suggests that price was not the main reason customers chose UBER. UBER was often preferred because they offered:
- An easy booking app – no need to talk to a rude booking clerk.
- Estimated time of arrival – rather than the typical ‘as soon as possible’.
- An identified driver and the capacity to track the driver to his/her destination.
- An automatic billing system – no need for in-car transactions.
- Clean vehicles and the option to comment on the driver and/or vehicle after the ride.
These features represented significant added value. The selection of UBER came down to much more than price. In fact, it transpired that price was not a significant driver in the choice of UBER compared with a standard taxi.
Taxi companies and drivers were missing the point. They probably still are.
Taxis are, at best, a commodity. UBER, with its added value, is much more than a commodity. It might be argued that this is so much so that the mistake UBER made was not to be more expensive than taxis.
Add value. Avoid offering a commodity that will always be compared on price. Use attributes to solve problems and create added value. Research demonstrates that there is always a significant market for added value offerings. Armed with a sound understanding of their target market, most businesses can add value to their brands and reduce price competition.
Put the facts ahead of intuition and guesswork.
THIS WEEK’S SOURCES
Dent, AMA, ShopifyPlus, Entrepreneur, Beyond Philosophy, MarketResearch.com, Moreforsmallbusiness.com, Hubspot, Beyond Cost Plus and Blue Stout.
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