Price Strategy - Avoiding the [Un-Winnable] Race to the Bottom
VALUABLE TIPS FOR WINDSURFING RETAILERS - CHAPTER #6
Undercutting competitors is almost a guaranteed formula for failure.
Where does it stop? Eventually somebody will 'win' by being the last person standing - but left with zero margin and a customer base forevermore expecting cut-price goods.
Even if you win the war and start to raise prices again, someone will only step in underneath you and it start all over again.
Getting into a price war - even if brands continue to supply those that do not respect reasonable suggested minimums - is basically foolish unless you're one of the 'big gun' buying groups, chains or physically large-scale stores. And even then you are massively eroding potential returns.
Discounting only 'works' at scale. Perhaps 1 in 10 stores will 'succeed'. Selling this way demands low overhead and volume relative to costs, not to mention massive stock value investment. (Read: Risk.) The simple facts are also that most products will be sold below their effective cost.
The solution is to play a different game altogether. Specialise in unique goods based on what you've learned already. (Adequate actual and effective margins related to your operating costs and realistic sales, longer shelf-life, extended-lifecycle-goods from suppliers that hold stock, honour warranties and can deliver fast across a broad assortment so that you can remain agile and cash liquid.)
Not only will trustworthy suppliers look after you, but your customers will also thank you too - because you will likely be selling goods that have a superior secondhand re-sale value as well.
- Only work with suppliers offering unconditional 'No Questions Asked' warranty policies. E.g., 'Comprehensive 1-year unconditional warranty' & '2-year manufacturing faults' cover.
- Policies should be examined thoroughly. Question the sales reps hard on the wording and interpretations. Do not accept any loose answers or vague responses.
- Follow up on references and ask other customers if the supplier acts fast and actions their policy/replacements unconditionally and swiftly - and sorts the ambiguous details out later.
- Does your supplier have your end customer or mind or not?
- Again, suppliers holding consistent stock are also important here so that replacements can be expedited immediately.