Are you competing on Price?

Unfortunately most small businesses find it very difficult to differentiate themselves in a way that’s obvious from the consumer’s point of view and they’re left to compete (primarily) on Price.

I thought about this because I saw an interesting article on Costco (nytimes.com/2005/07/17/business/yourmoney/17costco) that I found on the 37 Signals Blog (http://www.37signals.com/svn/posts/505-5-business-lessons-from-costco).

Although I’m not a customer at Costco, I did shop at their primary competition, Sam’s Club, this weekend and the first thing I think of when I think of the category is…low price.  Well that and really large jars of mayonnaise and cereal boxes that won’t fit in our car.

Both are large warehouse shopping clubs that give their customers great deals on merchandise, but as the article covers pretty clearly, Costco isn’t really differentiating themselves on price, they’re differentiating themselves on delivering what their customers want.  It’s a subtle difference, since one of the things their customers want are great prices, but it’s much larger than that.

By investing in happy employees (to the tune of a 42% payroll premium over Sam’s Club), Costco is making a serious investment that people make a difference and if you treat customers and employees right, they’ll treat you right.  The market apparently agrees since Costco is up 10% in the last 12 months compared to a 5% decline at Wal-Mart.

So how does this apply to the typical small business?  Well for starters, if you’re competing solely on price and you don’t have the scale of Wal-mart, you’re in trouble.  Actually, even if you do have the scale of Wal-mart, you might be in trouble.

Find something about you or your business that stands out, that makes you different.  Build on that difference (assuming it’s valuable to your customers).  Become the luggage maker that gives free insurance on every purchase (free_insurance_with_every_suitcase).   Or the Dentist that offers Spa treatments to patients as they wait (http://www.foxnews.com/story/0,2933,79719,00.html )

It’s not easy and it will take some creativity, but it’s certainly better than the alternative – a long slide down eroding margins…!

Maybe I should join Costco, they seem to have some pretty cool stuff.

So what about you – what could you do to differentiate?  Share your ideas about being different and if you’ve heard of some novel approaches.

5 thoughts on “Are you competing on Price?”

  1. Jack says:

    Very good letter, and you can help them differentiate there company. You are right about Costco, we dropped Sams membership some time ago and love Costco. Just bought a watch last week after we left your house, the deal wasn’t any better but I felt more secure buying there, almost always high quality merchandise. Love DAD

  2. Jody Wagner says:

    Shawn,
    I love the newsletter and have enjoyed reading your articles. Really enjoy the layout and especially the your contributions to resources and culture. I’ll keep reading. Do I need to subscribe or do you have me on that list already? P.S. Love your temporary portrait photo.

  3. Dan CLark says:

    We too were Sam’s club members but took the opportunity to tour the Costco store with a member and dropped our Sam’s on the spot. Also, we bought a computer at costco that the components just never worked right on. They took it back 9 months with no questions asked. The quality of food items is a lot better at Costco as well.

  4. Tom Noteboom says:

    Great comments Shawn. Most every company can differentiate themselves given enough thought and effort to do so. I am always impressed by your professionalism in these newsletters.

    Thanks for sharing your talents!

  5. Tom – thanks for reading, I’m really enjoying putting these together!

    Shawn

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