Low Price Strategy: High Risk For Brands

Jack TroutMay 1, 20122 min

Price is often the enemy of brand differentiation. By definition, being different should be worth something. It’s the reason that supports the case for paying a little more for a product or service, or at least the same amount.

But when price becomes the focus of a message or a company’s marketing activities, you are beginning to undermine your chances to be perceived as being unique. What you’re doing is making price the main consideration in picking you over your competition. That’s not a healthy way to go.

Few companies find happiness with this approach, for the simple reason that every one of your competitors has access to a pencil. And with it, each of them can mark down its prices any time it wants  to. And there goes your advantage.

As Harvard’s Michael Porter says, cutting prices is usually insanity if the competition can go as low as you can.

The Case Of Cheaper Carrots

To support Porter’s premise, we point you to a start-up company that came up with  a unique packaging system for baby carrots. It was one that  produced a decided price advantage over the two big suppliers that were already in the business.

To get on the supermarket shelves, the company entered the market not with better carrots but with a better price, repositioning its two big competitors as being expensive. Instantly the two big suppliers matched the upstart’s price. This forced the new company to go lower, and the new price once again was matched by the established brands.

When a board member asked the management of this start-up to predict what would happen, the management predicted that the two big companies would not continue to reduce their prices because doing so was “irrational.” They were losing money because of their older packaging technology.

The board member called us about this prediction. We advised him that the companies’ action was perfectly rational. Why would the two companies that dominated the market make it easy for a new company with a manufacturing price advantage to get into the market? They were quite happy with  things the way they were.

At the next board meeting, the management of the start-up company was encouraged to sell its new manufacturing system to one of the established brands. Which it did for a nice profit.

Everyone was happy, but another low-price strategy bit the dust.

Excerpted from my book REPOSITIONING: Marketing In An Era of Competition, Change, And Crisis 

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