A Very Bad Idea

I have just finished my final turn at judging a local high school business plan competition. I learn from the plans that I review for this competition every single time I participate. This year, the young entrepreneurs competed exclusively compete on price. Which is a very bad idea.

It’s good to compete on cost (just ask Southwest Airlines).  But it’s bad to compete on price. If the industry that you are entering is highly price competitive, don’t enter it. Competing on price will only land you in a downward spiral that never ends, or at least never ends until bankruptcy.  

Find yourself a market segment that is unique, small and needs highly specialized service.  Find a segment that has the ability to pay for these highly specialized services. Whatever you do, don’t feel guilty about charging them premium prices for those products or services. Keep evolving those products or services to meet new needs.

Or, you can follow the Wal-Mart/Southwest Airlines strategy. Keep your prices low and your costs lower than the competition.  Build bigger margins.  Deliver consistent service. Get bigger and out hustle the competition. Compete on cost, not on price.

Whatever you do, do not compete on low prices.  To quote my friend Sam, (age four), “because that’s berry berry bad”.


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