The Price-Quality Trade-Off is Dead
Rich Walker is the Executive Director of the American Architectural Manufacturers Association (AAMA), whose members are in the business of commercial and residential windows. Here’s what he tells me: “Two years ago we didn’t anticipate that the Asian challenge would be as intense as it is today. Imports from China have changed everything. It’s not just that they’re cheap. What’s scary is that even though they charge 1/3 to ½ our price for window framing, they’re exporting good quality product.”
Switch gears now, to a senior manager at Morgan Stanley Dean Witter (MSDW), who wrote me the following: “Over the years institutional and retail commissions for stock transactions have come down dramatically. Online and discount brokerage firms continue to offer equivalent quality executions at lower and lower price points.”
What’s going on here? It used to be that if customers couldn’t pay a premium, they’d have to accept low quality in return. In other words, the low price vendor was by definition the low quality vendor. That’s not true any more, witness the success of companies as diverse as Dell, Jet Blue, Progressive Insurance, and Men’s Wearhouse—all recognized for good products and good customer service as well as low prices. Note the fact that in both the AAMA and MSDW cases, representatives of both organizations conceded that lower price competitors were offering, in effect, comparable quality goods and services.
Three implications for you. First, don’t get complacent and assume that the low priced competitors are offering cruddy products and services. Second, get serious about cleaning up your cost structure so that you can, when necessary, lower your price a little without sacrificing margin.
Third, and most important, focus on creating price-value. Remember that at the end of the day, your company’s capacity to offer a unique, “must have” breakthrough value package --whether the value is built into the features of the product, the aftersale service, the customization, the relationship, or the distribution-- is a much better predictor of competitive success than simply trying to imitate those whose strategy is built around commodity thinking and low-ball prices.
Switch gears now, to a senior manager at Morgan Stanley Dean Witter (MSDW), who wrote me the following: “Over the years institutional and retail commissions for stock transactions have come down dramatically. Online and discount brokerage firms continue to offer equivalent quality executions at lower and lower price points.”
What’s going on here? It used to be that if customers couldn’t pay a premium, they’d have to accept low quality in return. In other words, the low price vendor was by definition the low quality vendor. That’s not true any more, witness the success of companies as diverse as Dell, Jet Blue, Progressive Insurance, and Men’s Wearhouse—all recognized for good products and good customer service as well as low prices. Note the fact that in both the AAMA and MSDW cases, representatives of both organizations conceded that lower price competitors were offering, in effect, comparable quality goods and services.
Three implications for you. First, don’t get complacent and assume that the low priced competitors are offering cruddy products and services. Second, get serious about cleaning up your cost structure so that you can, when necessary, lower your price a little without sacrificing margin.
Third, and most important, focus on creating price-value. Remember that at the end of the day, your company’s capacity to offer a unique, “must have” breakthrough value package --whether the value is built into the features of the product, the aftersale service, the customization, the relationship, or the distribution-- is a much better predictor of competitive success than simply trying to imitate those whose strategy is built around commodity thinking and low-ball prices.
posted by Oren Harari at 11:15 AM
0 Comments:
Post a Comment
<< Home