Lower prices don't always pay

I recently met a friend who was getting into a new venture and I got curious.

Me - "Wow that's great. Have you given branding a thought? "
Him -"yes, I already have a NAME for it..its called..............."
Me - "Great!! So what's so different about your band from so many others out there in the same sector?"
him - "We will be cheaper than the other options?"
Me - "How will you be cheaper?"
Him - "Our prices will be lower cause we will keep lower margins, lower input costs,lower......"

There ended our brief meeting as we both had to go our separate ways.

 Why did I want to write about this? Well because I think there is a great lesson in this for those interested in setting up a business or venture.

If low prices and better quality and value, are going to be your USP in a business that is highly competitive both on pricing and supply, you better have a Walmart like market share that can be leveraged to arm twist suppliers for lower input prices.

The second aspect of lowering one's margin to provide value in terms of lower pricing is beneficial in the short term but in the long term can be killing. One may attract a lot of bookings and initial excitement but, pursuing such a strategy can be killing especially in the reality sector and in the long term. Why ? Competitors who already have ready to occupy inventory and better brand equity would then just reduce their prices and effectively neutralise the startup's strategy.

Secondly in such a scenario your brand would then have to lower its prices further to keep up and that's not a great feeling when you don't, have deep pockets and a considerable pricing/profit margin!

So what does one do? Well a cluttered, crowded, monotonous  market always offers immense opportunity for differentiation and value through creating a niche offering or tapping a segment that has not been catered to, that would offer better margins and help build a reputation and differentiation in a crowded market