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Want to be a BIGG success in business? Then understand the difference between popularity and profitability.
Popularity can be costly!
One of the biggest mistakes we see business owners and managers make is trying to be popular. They think it’s the key to being profitable.
But it’s not. Quite the opposite – it’s probably the path to bankruptcy.
They want to be profitable. They think that means reaching the masses. So they market to everyone. Here’s something to never forget:
When you try to market to everyone,
you end up marketing to no one.
You simply can’t hit everyone’s “hot button.” What’s compelling to one person is boring to the next one.
So you don’t limit your opportunities by targeting select groups of people. You expand them. Here’s how:
The three components of value
One of the things you need to decide is how to position yourself in the marketplace. You may have heard the following:
You can be good, fast or cheap. Pick any two.
Entrepreneurs who have a popularity mindset often ask why you only get to pick two. The answer is simple: You can’t defend all three.
It costs money to be good. It costs money to be fast.
If you’re trying to compete on all three, a competitor can eat your lunch by only competing on two of the three.
For example, let’s say they’re fast and cheap. They can sell at a lower price than you and still make the same profit.
So now you’re only competitive on two of the factors – good and fast. The old saying still holds.
“Good, fast, and cheap” is just another way of highlighting the three components of value from your customer’s point-of-view (i.e. perceived value): quality, service and price.
Six strategies to trump your competition
With this framework, let’s look at six ways you can trump your competition:
- Improve quality, keep price constant.
If quality increases but price doesn’t, you increase the value your customers receive. You focus on trying to make your “good” even better so you gain business.
- Improve service, hold price constant
If you improve your level of service while keeping your price the same, your customers will perceive it as a better deal. You focus on making “fast” even faster. This actually applies to anything having to do with customer service, not just speed.
- Decrease price, keep quality constant
If you can decrease your price without sacrificing quality, you’ll increase the value to your customers. We all love a good deal, right?
- Decrease price, maintain service levels
If price falls without sacrificing service, your customers will realize they’re getting a better deal. More people will buy more!
- Improve quality, increase price
If you can improve your quality but increase your price, you’ll hold perceived value constant. Your customers are still happy, because they’re getting the same value as before. They’re paying more now, but they’re getting a better product.
- Improve service, increase price
This is the same as the previous strategy, only here you’re delivering a higher level of service.
The first four strategies above are defensive. We caution you:
While they may give you a competitive edge, they all cut into your profit margin.
So what you’re trying to do with these strategies is increase profit (dollars) by increasing sales enough to compensate for the lower margin.
It’s risky – if you don’t get it right, you’ll work harder (because you’re selling more) for the same (or perhaps even less) money.
However, if sales increase enough, you will make more money than you are now.
The final two strategies are designed to increase your sales and at least maintain your profit margin.
Therefore, your profit should go up. Here’s the caveat: You have to maintain your customer base, even at the higher price.
As you consider these strategies, think across your whole business. You may find it profitable to use different strategies for different products or services.
How do you differentiate yourself?