In sports, people learn very quickly to play to their strengths. Playing your opponent’s game is very likely to lead to defeat. Unfortunately, this seems to be lost on some: some big name brick and mortar stores have been implementing price match policies that include prices from online retailers, while others have been attempting to prevent shoppers from “showrooming”.
Perhaps I’m missing something, but can you really engage in a price war with a competitor that has far less overhead? Likewise, when you’ve managed to get a potential buyer into your store, is that the time to inconvenience them? Storefronts have advantages like the ability to immediately take possession (no wait for the delivery truck) and the ability to inspect what you’re buying. While the customer may think price is everything, value is what they’re really after.
So what’s the IT angle here?
You aren’t going to win on price. Whether it’s software as a service, infrastructure as a service or offshore development, you cannot beat their price.
You can, however, win on value.
In “What do you do when you find yourself in quicksand?”, I covered a number of challenges facing corporate IT groups and some ways to address them. Some involved cutting costs (it’s not everything, but it’s still an important thing to eliminate unnecessary expense). However, the most important thing is to increase the level of value that’s being provided. More often than not, people will pay extra for value. It’s when they’ve been burnt that they get motivated to shop around.
As I observed on Twitter regarding the Business Model Innovation post:
.@tetradian @alexosterwalder @business_inno All else being equal, price is key…but how often is all else really equal?
— Gene Hughson (@GeneHughson) October 31, 2012
Form Follows Function 
Since the early ’90s of the previous century, there are two major currents in retail:
A) Efficiency and optimization, commonly known as the Walmart effect. Retailers continually lower the cost of the operation. At Walmart, this translated to lower prices. It also translated to innovative supply chain management and also to hard bargain on expenses, including employee salaries and pushing suppliers to their limit.
B) Customer loyalty and customer experience. This trend, pioneered and mastered by TESCO included strategies to bringing customers back into Your store.
Retailers that invest in both, and giving priority to customer experience and loyalty survive better. There is place for only one Goliath in the market, and unless you can afford to aim directly and openly at its forehead, you’d better offer superior service to make it worhwhile to return to your shop.
The same goes for IT and software. Customers look for service – after sales, maintenance and support, good relations, and, yes, understanding their needs, just as much as they look for price.
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Indeed. Offshoring has been an example of this (and I should say up front that I don’t have an axe to grind re: offshoring, I’ve led teams with offshore components and had great success). Those that focused too much on price without consideration for other factors came to grief. As with any system, when you focus on one parameter and ignore all the others, things get out of balance.
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Hi Gene,
Nice post. Unlike “price”, but like “quality”, “value” is hard to quantify. One customer’s “value” is another customer’s “unnecessary expense”.
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Thanks, Tony.
I absolutely agree that both “value” and “quality” are subjective measures. Also, the customer is the final arbiter of their meaning. Sometimes they have to find out the hard way that an expense isn’t “unnecessary”.
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Gene, Recognizing and playing our strenght is essential. As you said, value is the differentiator.
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