More Sales OR More Money?

[timwilliams]

I know, more money right?! But here's the thing, I'm thinking it might be better in the long run to make a few dollars less a day in order to take sales away from the competition.

Lets say there are 100 buyers a day for a product. When we sell that product at 1.00 we sell 25 of them a day, 1/4 of the total buyers. When we sell the product at .50 we sell 45 of them a day, netting 2.50 less a day but taking 20 sales away from the competition. So is it worth making less money to take significant sales away from the competition?

Or maybe the thinking is wrong, maybe there's 100 buyers in the market at a 1.00 price point and there's 120 buyers in the market at a .50 price point and we're not taking anything away from the competition with the lower price...

[Marketing Guy]

Depends whether or not the value of the sale is that one-off purchase or if a percentage of previous customers will buy again. In the case of the latter, you need to factor in the long term value of a customer before deciding which is best. Many businesses have loss-leading products for this very reason.

On the subject of price - it'll always be a deciding factor within certain markets. Mid-end cars will usually sell en-masse and based on price. High-end cars won't though (some will, but those customers tend to be mid-end flirting with high-end). Where does your product sit in your market?

[timwilliams]

97% one-off purchases.

we are typically at the top of the market for pricing, but we play in all price ranges. working on your car analogy, if there are 2 car prices, 10k and 20k, and there are 10 people that will be buying a car, 4 buy the 20k car and 6 buy the 10k car, if the 20k car lowers the price to 12k do they:
a. take some of the 10k car sellers buyers away
b. create new buyers in addition to the 10 already buying
c. both

likewise if the 20k car seller lowers their price to 9k do they:
a. take some of the 10k car sellers buyers away
b. create new buyers in addition to the 10 already buying
c. both

[topr8]

OR also ...

likewise if the 20k car seller lowers their price to 9k do they:

d. lose some of their original '4' buyers

[jwolthuis]

So is it worth making less money to take significant sales away from the competition?

Nope, "more money for less effort" trumps "big ego" every time.

[timwilliams]

Nope, "more money for less effort" trumps "big ego" every time.

Business is business, has nothing to do with ego. Making it harder for your competition to turn a profit is a space leads to easier profitability for you in the long run. If I stay happy making $x today and put no pressure on the people looking to eat my lunch they will eat my lunch.

[jwolthuis]

Making it harder for your competition to turn a profit...

I wouldn't get caught up with that. Several of my competitors are run at a loss, propped up by a spouse with a good day job. It that respect, their business is more like a hobby, to keep themselves busy, garner the respect of their peers, and to qualify for wholesale pricing on items for their personal enjoyment.

If you make less profit by selling twice as much, work twice as hard in the process, for the sake of making it "harder" for the next future ex-competitor, what have you gained? Pride? Ego?

There will always be competitors who price things to "make it harder for you" to turn a profit. When they go away, someone else will take their place. Playing a pricing game is just a race to the bottom.

[engine]

Profit is the key to a successful business. If you don't make adequate profit you can't pay your investors (which may be just one individual), and you can't re-invest. If your margin become too thin, as soon as the business hits tough times there's nothing to fall back onto.
Running a few product as a loss leader is entirely different and may give the company the opportunity to up-sell, or to add normally-priced products to the cart.

[HRoth]

IMO, it is more profitable to focus on increasing individual sales than on taking away customers from the competition. As far as I am concerned, my competition can have all the cheapskates, whiners, and ripoffs they want. I prefer the customers who spend more and who have enough competence to understand the value of what I sell. I just did the numbers for this past July compared to July 2011. I had the same number of sales but 45% more gross. I was pretty happy. I have no idea what the competition did and don't care.

[votrechien]

You're making two assumptions:

1) You're likely assuming you get some other benefit by capturing more market share (obviously you realize lower profits as the end result isn't a good solution). Do you think you can get better pricing from your increased volume? Do you think you can drive your competition out and then increase your price?

2) You're assuming your competition won't lower their price accordingly. A race to the bottom is never a good race to be in.

[Essex_boy]

Porsche tried something similar, high priced cars as we all know they launched a cheaper version that nearly everyone could afford, high priced cars stopped selling. High priced car buyers goes else where...

I tried a product range, I couldnt give the stuff away, tripled the price the gear flew out of the door. Reviews in Forbes food and leisure section. Funny old world....

[onlineleben]

Or maybe the thinking is wrong, maybe there's 100 buyers in the market at a 1.00 price point and there's 120 buyers in the market at a .50 price point and we're not taking anything away from the competition with the lower price...

Do a split test: keep your original price with the majority of your buyers and offer different prices to other parts of your audience. Find a pricepoint were you get the most out of your customers. This price could even be higher than your original one.

[topr8]

Ok, first off i agree with the views expressed here regarding ego and racing to the bottom.

... but in keeping with the OP question ... the problem i see is that the scenario sounds unlikely - are there really only 2 suppliers? and if there are only 2 suppliers, what's to stop another starting to sell too?

[KevinC]

if you try to play that game you will lose and possibly screw it up for the entire industry.

Once you sell that $1 product for $0.50 you've not changed the value of the product in the consumers eyes.

Its REALLY hard to go back up in price and as you grow you may find you can no longer keep the doors open selling at only $0.50.

Be very careful playing the "I'm cheapest" game, ultimately someone will be cheaper and you'll be in a bad position.

[idolw]

Once you've taken these customers from competition, how do you plan to sell anything to them again at normal prices?
Think Groupon.

[ukfinanceaff]

Increasing volume at the expense of margins is madness, as your fulfilment costs remain unchanged, which invariably means that the price you pay to deliver the product does not come down as your volumes increase.

So, lower margins from reduced price, increased overheads as a result of higher volumes = a stupid reduction on your bottom line.

Unless your increased volume will allow you to buy more cheaply (like Walmart) then it really isn't worth pursuing this policy as it will all end in tears.

Better to find a less competitive market than chase volume in a crowded one, IMO.

[netmeg]

There will ALWAYS be someone cheaper eventually. Always. So if price is your main selling point, you're probably just in it for the short term (whether you want to be or not)

I have clients who discount heavily in order to grab sales from competitors, and in fact just to get the customer in the door, because they have an extraordinarily high rate of return business. We can practically give the first couple orders away free if we wanted to.

But other clients who sell once and never hear from their customers again. They tried cheap, and that only worked for a while, and now they're trying bundling products.

I have no idea what you're selling or what kind of business plan (long or short term) you want to operate on, but a bunch of my clients are now leaning towards the Amazon subscription method of selling consumables. And if what they are selling isn't consumable (meaning it doesn't need to be re-ordered at some point) then they are looking at getting IN to consumables, or something of value they can bundle with the original product.

The Amazon subscription method, in case you haven't run across it - say you want to buy some vitamins or supplements, and the cost is $29.95. You can either buy the one bottle, or you can sign up to have them delivered at some increment of time (every thirty days, for example) and the bottle may only cost #24.95. There's no commitment, and you can cancel at any time. But a lot of people won't, and still other people appreciate the convenience. We're doing it with types of office supplies and some other products, and trying to figure out a way to do it with products that people normally don't buy more than once.

Our most profitable business (across most of my clients) is repeat business; more money, more brand equity, more everything. So that's what we throw ourselves into.

[Bewenched]

I look at it this way.

Your volume of sales may go up, but then again so do your headaches.... ie shipping issues, damage claims etc.. is it worth making less per day just to screw a competitor.

[KevinC]

the one option is to have a specific product that you sell cheaply, something that isn't part of your regular line - sort of a low commitment sample purchase.

Marking all your products down is not good though.

[gtellier]

Trying to take away business from rival companies should be left to the big wigs. Their brand-name popularity and lucrative funds are what allows them to accomplish buying out the competition.

Also people sometimes assume lower prices equals less quality goods when purchasing from unknown companies.

[skibum]

By maximizing profit now it seems like the business would be in better shape should a price war break where pricing drops significantly. By keeping prices higher, and making more profit with less work, it seems that the business would have those customers who are less price sensitive when tough times arrive.

I think it is good to keep an eye on the competition but it can lead to less than optimal results if competitive data trumps internal sales data unless there is a very serious threat.

[Clarence]

worst decision possible!

either competition will lower and everyone will lose or the perceived price will be set and customer won't pay more again.

What's the point of beating the competition? Do you think they will just give up because you're taking all the customers ? They will let their inventory go to waste? No, they will compete. Imagine back and fourth on prices until you both are selling at cost! doesn't sound like a smart move!

[diberry]

Making it harder for your competition to turn a profit is a space leads to easier profitability for you in the long run.

Until someone comes along with lots of capital backing, and can afford to charge even less to run YOU out of the space.

Big brands can always go cheaper than small businesses, but smaller businesses can shine on perceived value and customer care. I think you'd be better off working on convincing people that your product is valuable and you care about your customers.

[timwilliams]

Another benefit of more customers = more potential social media buzz.
*caveat, must be providing a quality product/service

Good advice in this thread however, keep in mind that I never said anything about a price war or operating at a loss.