The Race to the Bottom:
Why Winning Isn’t Always a Good Thing
The problem with a race to the bottom is that you might win.
As products become commoditized, it can be tempting to believe that the only way to stay ahead is to engage in a race to the bottom by competing solely on price.
If your business is only competing on price, you will eventually reach a point where you can’t lower your prices further. Congratulations, you’ve just won the race to the bottom. Now you are stuck, with no room to move, and have reduced your product margins to a minimum. Don’t fool yourself into believing that you can make up for low margins through increased volume.
Instead, businesses should follow a strategy focused on pricing based on value. That means understanding what your customers want and need - and pricing your product or service accordingly. If you can deliver something your customers truly value, they will be willing to pay a premium price.
To achieve this, you need to understand your customers and their pain points. What are they struggling with? How can you help solve their problems? What are their goals and aspirations? How can your product or service help them achieve those goals?
Once you have obtained a deep understanding of your customers, you can begin thinking about how to best deliver value to them in a way that they are willing to pay for. That might mean adding new features, improving the user experience, or providing better customer support. Doing so will increase customer perception of value, enabling you to price appropriately.
Pricing isn't a one-time decision. You should continually reassess your pricing strategy and make adjustments based on customer feedback and changes in the competitive landscape.
Similarly, a product isn't a one-and-done endeavor. As customers, markets, and technology evolve, so must your products to resist commoditization or, even worse, obsolescence. Iterating and evolving your products will keep them relevant and continue to provide customer value.
In short, don't fall into the trap of competing solely on price. Instead, focus on delivering value to your customers and pricing correctly. Not only will this help you differentiate your business in a crowded market, but it will also help you build long-term customer relationships based on their perceived value of your product and at a price that your business can sustain.
Originally published in Bootcamp on Medium.