Marketing Mastery: The cheap-price, dead-end mission

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March 30/April 6, 2015; Volume 28/Number 20

By Jim Augustus Armstrong

I’ve preached numerous times in this column that for most dealers, competing on price is a suicide mission. If you thought I was overstating my case, the recent Lumber Liquidators debacle should forever erase that idea from your mind.

Positioning yourself in the market as the dealer with the cheapest prices is, at best, a fragile and temporary advantage. All it takes is someone to come along with a cheaper price and you’ve instantly lost your advantage. Companies like Lumber Liquidators that have built their entire businesses around low prices know this and they face enormous pressure to keep their prices down. This pressure often leads to poor quality control and sometimes even to activities that are unethical or outright illegal.

Customer service is another casualty of offering cheap prices. It’s simply not possible to offer good service, provide quality installations or honor your warranties when you’re charging razor-thin margins. Perform an online search for customer reviews for Lumber Liquidators, Home Depot or any other major discounter and you will find hundreds of horror stories.

A cheap-price business model is difficult to maintain, even for large companies that can buy in bulk and have investor capitol and cash reserves. In the early 1980s, Kmart was the king of the low price retailers and in its heyday the idea that it could be dethroned seemed ludicrous. Then Walmart came along.

However, most dealers who engage in price slashing don’t have an actual cheap-price business plan in place or the economies of mass scale working for them. They are acting out of pure desperation, reacting to the advertising they see coming from the national discounters, and believe they have to lower their prices in order to be competitive. These dealers who are simply lowering the numbers on their price tags are most likely desperate price slashers.

Desperate price slashers pay an enormous personal cost. They are typically overworked and underpaid. 50-hour work weeks are the norm and much of that time is spent dealing with problems created by selling on the cheap such as the inability to hire quality installers, lack of administrative help, robbing Peter to pay Paul, and so on. Sometimes they work for decades and have nothing to show except a business that can’t be sold, little or no retirement savings and a pile of debt.

So what is the solution? How can dealers command margins of 45% and higher when legions of competitors are pushing for cheap prices? The answer is to use a system of strategies all working together to empower you to command premium prices. There is no silver bullet; no single strategy will make this happen. The first step is to make a commitment to learning and implementing multiple premium-price strategies. In the next installment, I’ll review a number of proven strategies to help you.

In the meantime, I’ll leave you with a premium-price strategy you can implement immediately: consumer education. I wrote a column titled, “How consumers can protect themselves from unethical flooring dealers” as a consumer education piece in response to the Lumber Liquidators scandal. It includes five steps a consumer can take to find an honest, ethical dealer who sells safe, quality products. I designed this as a sales tool that dealers can give out to customers who ask about the safety of laminate flooring. It educates customers and positions dealers as consumer advocates.

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