Price for profits, not for war

Posted: September 8, 2008 in Business
Tags: , , , , ,

When I was younger, I read that competition is the consumer’s best friend because if there are more businesses offering the same thing, prices should go down. As a consumer, I agree and have benefited lots of times from it. Problem is that thought process became the norm even to Business owners. Start-up entrepreneurs started thinking that to be successful in business, you have to get “market share” by killing competition, and to kill competition, you sell at a lower price.

In my marketing seminars to start-up entrepreneurs, I will almost always start by saying “We are merchants, not warriors” to remind the participants to focus not on competition but on their business. In business you should never think about killing competition, worse, never even try it by selling at predatory prices. Why? Because competition will ALWAYS be there, even if you manage to destroy one or two today, 10 more will spring up tomorrow. It’s a losing battle that you will never win. Then I would say “As merchants, we price for profit, not for war”. No one wins in a price war, but the business with the most profits will always win against its competitors.

Here’s a case in point. A couple of years ago I was invited to speak on “How to Start and Manage a Food Cart” At first, the organizers wanted me to price it at P500 / seat since their other speakers was offering that price. I said no.

I ended up negotiating the price to P2,500 / seat, 5 times higher than what the competition was pricing it. Though the organizers were reluctant at first, they finally said okay. When the seminar day came, there were three seminars going on at the same time, mine and 2 others. The other 2 seminars were jam packed with about 60 participants each, mine had only 30 participants. Yes, the other 2 speakers had the market share, but I made the most in profits.

Speaker A/B had 60 participants x P500 = P30,000.
I had 30 participants x P2,500 = P75,000.

Even if I only had 12 participants, I would have made the same amount compared to the competition, in my example above I only had half of what they got but I won over them in profits by an astounding 150%.

So here’s the point, I did not have to lower my price to compete and in the end the business who is left standing is the one with the money to continue going.

All the best!


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