Selling the Invisible: a field Guide to Modern Marketing \(Biz Books to Go\) pdfdrive com

Setting your price is like setting a screw. A little resistance is a good sign.
Avoiding the Deadly Middle
Companies in many services essentially set their rates by studying the going,
high, and low rates, and then deciding where they fall on the quality spectrum.
This unfortunate practice tells their customers exactly how good the company
really thinks it is.
Ask yourself: If that’s how you are pricing your services, what are you saying
to your customers and prospects—that you aren’t that great?
Another problem with this pricing strategy is the Problem of the Deadly
Middle. If you are the high-priced provider, most people assume you offer the
best quality—a desirable position. If you are the low-cost provider, most people
assume you deliver an acceptable product at the lowest cost—also a desirable
position. But if you price in the middle, what you are saying—again—is: “We’re
not the best, and neither is our price, but both our service and price are pretty
good.” Not a very compelling message.
The premium service and the low-cost provider occupy nice niches all by
themselves. If you are priced in between, however, you are competing with
almost everyone. And that’s a lot of everyones.
Beware of the Deadly Middle.

---

The Low-Cost Trap
You can make a good marketing case for becoming the low-cost provider.
Your position is clear and so is your price; it’s the lowest a prospect can find.
But the low-cost position kills.
Where are they now, the great low-priced services of our past? The old
synonyms for low-cost retailing—such as J.C. Penney, Montgomery Ward, and
Sears—are dead, dying, or reeling. At this writing, five discounters in the
Northeast alone are suffering even more. Caldor and Bradlees have filed for
bankruptcy, Jamesway is considering it, and Ames and Filene’s are bleeding red
ink.
Low-cost providers take it from several directions. Cutting costs requires
little imagination, and the low-cost position can be seized without a large
investment in brand building. So in most nonretail service industries, the low-
cost provider is a relatively easy market niche to enter. Just when you perfect
your system for reducing costs, someone else devises a better one—as discount
retailers discovered when Wal-Mart jumped in.
Many low-cost providers attain their position through ruthless dealing with
suppliers. Over the short term, that squeezing can work; suppliers who need the
business grudgingly oblige. But those suppliers never become allies. They even
may generate bad word-of-mouth to compensate for the bad treatment they
receive. If those suppliers get a good chance to get out of the deal years later,
they do— gleefully, bad word-of-mouth trailing them as they flee.
*
Cost shavers also find it harder to inspire employees. Employees often see a
company’s intelligent austerity as mean-spirited cheapness. Would you like a
windowless, carpetless cubicle forty-five hours a
But this is soft thinking, you say. Where’s the hard data suggesting that low
cost is a trap?
In the Harvard Business Review. In its September– October 1980 issue,
William Hull reported his study comparing companies that stressed
differentiation with companies that competed on cost.
In every measure that mattered—in return on equity, return on capital, and
average annual revenue growth rate—the differentiators beat the tight-wads
every time.
Hull’s study echoed what the people at ADP, the country’s leader in payroll
processing, have discovered. “We will never try to develop a strategy based on
pricing,” CEO Josh Weston had said. “There is nothing unique about pricing.”
Remember this: Most service prospects can find an even lower cost option

---

than yours; they can do the service themselves or not at all. The homeowner can
paint his own house or postpone it indefinitely; the woman with a troublesome
mole can diagnose her own ailment or refuse medical service altogether; the
aggrieved subcontractor can take his own case to court or say to hell with it.
People almost always can find a cheaper way to get your service—and few
efforts are less rewarding than trying to compete with those cheaper ways.