Competing on Price Vs Benefit

Competing on Price

Budget brands compete on price. If a petrol station charges ₹110 and another charges ₹100, people go to the latter. The product is the same, so the buyer might as well get it cheap. Competing on price is a brutal business. Your clients will call you at 10 PM, and you have to take their call. They’ll snap at you, or demean you. You won’t be able to speak up. They’ll keep threatening you that they can get a cheaper deal elsewhere. Your competitors can steal your customers by offering them a discount, because there’s only one dimension on which to evaluate multiple service providers: price.

In the cost-benefit calculation of benefit / cost, when you compete on price, you’re trying to win by reducing the denominator.

Competing on Benefit

In stark contrast, I, as a Tech Advisor to CXOs, compete on benefit. A typical project costs $100K. When a founder said they can get it cheaper, I invited him to go ahead, see the results and, if he’s dissatisfied, come back. Apple, Bose and Mercedes all compete on benefit. Benefit may be a better quality, a reliable product that lasts for years, an intuitive user experience, comfort or convenience. When you compete on quality, you’re asking yourself, “How can I make my customers’ lives better?”, not “How do I charge less?” If your service is costlier than competitors but adds more benefit, benefit-inclined customers will buy. In my case, I delivered a multi-million dollar outcome for one of my clients. If a prospective client needs to pick between me and another advisor, I ask them to think about who’s more likely to deliver a multi-million dollar outcome for them, not whether the other consultant charges $50K rather than the $100K I charge.

In the cost-benefit calculation of benefit / cost, when you compete on benefit, you’re trying to win by increasing the numerator.

Competing on Benefit and Price

There are alternatives to hiring me as a consultant. The startup could hire a full-time CTO. But a full-time CTO of my caliber can cost $200K, significantly more than the $100K I charge, so I’m competing on price.

People say that premium brands like Mercedes don’t compete on price. But that’s not accurate: They don’t compete on price against Maruti, but they do compete on price¹ against other luxury car brands like BMW and Audi. The iPhone competes with the Samsung Galaxy S.

There’s an alternative to every product and service in the market. So nobody competes purely on benefit — their either compete on both benefit and cost, or only on cost.

In the cost-benefit calculation of benefit / cost, when you compete on both benefit and cost, you’re trying to win by increasing the numerator and decreasing the denominator.

1. among other dimensions