Branding on price is a tough grind. It’s very hard, if not impossible, to defend a low-cost position for any significant period of time.
The primary issue to branding on a low-cost position is there can only be one cheapest provider.
Let that sink in. The brand who is the cheapest is the only one that matters in a price driven strategy. Every other brand that has slightly higher costs is not the lowest cost provider, and thus more expensive.
Even in commoditized industries, there is only one low-cost provider. They set the floor and the performance standard their competitors have to abide by.
Low-cost positioning is a dated strategy
In the 80’s and 90’s, becoming the lowest cost provider was a common business strategy. Companies invested heavily in technology, systems and outsourcing to improve their productivity and cut their costs.
For example, in 1987 Walmart installed the largest private satellite system in the United States. The network created a huge competitive advantage over related retailers, because it greatly improved Walmart’s ability to efficiently distribute products.
In 2013 achieving the lowest-cost brand position is a lot more challenging. In most industries the floor is well defined and grossly unprofitable.
Customers want function over price
Adam Morgan coined the phrase, “Startlingly Useful.” I am enamored with the concept.
Price is a poor predictor of function. Actually, low-cost is usually a sign of poor quality and limited functionality.
Customers are rarely seeking out the lowest cost option. Rather they’re seeking value: good functionality for the price.
Companies that deliver a startlingly useful solution have nailed the value equation. Their products work exceedingly well, and the price just makes sense. Price reinforces the customers’ expectations of form and function.
Make price secondary
Walmart grew into the largest retailer in the world by focusing on being the lowest cost provider in their category, but look at them today. Walmart has evolved from a pure price play to focus on a value equation. Price is still very important to their brand positioning, but it is not the primary driver.
Price may be very important to your brand and strategy, but make it a secondary feature. Lead with what makes you unique, and then use price to back up your value proposition.
You may not be able to protect the lowest-cost position, but you can protect what makes your business unique.