Misconceptions about Order Qualifiers and Order Winners
I'd like to wish you all a very happy Independence Day. Have a wonderful tenth of July!
Wait, the tenth? Have I gone mad? I'm sure that you're all about to correct me. Everyone knows that Independence Day falls on the fourth.
Well, not for people in The Bahamas.
It turns out that we all make many assumptions without even realizing it.
Do you ever wonder about the assumptions that you've made regarding your pricing strategy?
Pricing Question from a Reader
I'm now forced to compete against a couple of well-funded companies that entered my market. I just can't offer what they do at an equivalent price. They have too many resources, and I think they're even willing to operate at a loss. As a result, I'm losing customers left and right. What can I do to survive?
Many business owners believe that their products have to match their competitors' products point for point. As I explained in my article, Avoid the Red Queen, this type of strategy isn't always a great idea.
Nevertheless, pundits are quick to point out that, in any marketplace, there are order qualifiers (qualities that must be met to even have a hope of competing) and order winners (qualities that lead to significant levels of success).
Some characteristics may be necessary just to be considered by shoppers, some characteristics may be necessary for marketplace domination, and some may not matter in the slightest. The ability to identify and replicate the most vital characteristics should, at least theoretically, determine whether a firm can stand a chance of surviving in a market awash with powerful new entrants.
You need to be clear about what you are selling. If you manage a consultancy, are you selling answers to urgent questions, or are you selling prestige in a box? The former might hire from non-target schools. The latter? No way!
I could go into more detail, and many popular business resources do. That said, the traditional model relies upon two dubious assumptions:
- Every market has room for only a single type of winning product
- A given business must remain in a static market
For many businesses, neither is true. If you can't beat your competitors at their own game, you are always free to take part in a new one.
Here are a few possible approaches to your situation:
- Change the marketplace - Shifting through space and time can result in massive changes to customer preferences. For instance, when I was in Seattle, restaurants' food safety scores weighed heavily upon my buying decisions. This is because King County required very visible, and very easily understood, ratings to be placed at the entrance to every eatery. Now that I'm back in Florida, issues of food quality are far less important to me. Without obvious and mandatory signaling, getting a feel for a local restaurant's food safety rating is much more difficult.
- Change the customer - Many would consider that, all things being equal, a lower per-unit price would be an order winner. This isn't always the case. Single people tend to find that buying perishable food in smaller quantities, even when the per-unit price is higher, makes economic sense. After all, food can, and will, spoil if not eaten quickly.
- Change perception and desire - It wasn't that long ago that diamond traders mocked those who dealt in artificial diamonds. Now even De Beers is selling man-made stones alongside its traditional offerings.
- Change the use case - In the 1970s, a scientist at 3M invented a very weak glue. Seen as a poor substitute for existing adhesives, it was deemed a complete failure... until the concept of a Post-it Note came about, and the value of his creation suddenly skyrocketed.
- Leapfrog the competition - Sometimes new technologies or approaches render current order qualifiers and order winners irrelevant. For instance, it was once thought that domination of telecommunication fields required the ownership of telephone poles and copper wiring. Over the past few decades, with the introduction of satellite communications, this has been proven demonstrably false.
- Wait them out - Customers can be finicky. There were times when they demanded avocado green appliances, shag carpeting, formica counter tops, and even hammer pants. Today, manufacturers would have trouble giving any of these products away. The nature and makeup of order winning and order qualifying characteristics can change on a dime - you might just have to wait for consumers to come to their senses. Do be careful, however: the market can stay irrational longer than you can stay solvent.
We're often trained to think that competition needs to be met head-on. This is rarely the case. Often a bit of ingenuity is all that is required to survive in the face of seemingly unstoppable competition. Of course, when in doubt, it never hurts to be seen as the premium option.
Questions come from readers like you. If you'd like your questions answered, send them my way.
♫This Q&A and many others are now available on the Pricing After Dark podcast.
Pricing in the News
- News outlets seek Congress' aid in talks with tech firms - Desperate reporters are afraid of breaking the news
- Ban on rideshare surge pricing lifted for College World Series - The government banned the behavior, but suppliers banded together
- Drug companies sue Trump administration over new rule forcing them to reveal cost of treatments in TV adverts - Revealing drug prices might not reveal as much as you think
- SoulCycle Has Found a Brilliant Way to Monetize Loyalty - SoulCycle wheeled out a new pricing policy. Good for consumers, or is the company just putting a good spin on things?
- New York Advances a Bill to End Gender Discrimination in Product Pricing - The government wants companies to man up and engender market fairness
- A tale of two cities: Why ransomware will just get worse - Prevailing pricing potentially predicts perpetrators' probable prey
- AT&T sued over hidden fee that raises mobile prices above advertised rate - Telecom called out over fees, and its defense might ring hollow
- Sneaky deals are keeping cheaper generic medicines off the market - Giving money to potential competitors can prove quite profitable
- Why Transparency on Medical Prices Could Actually Make Them Go Higher - A concrete example of price transparency harming consumers
From the Blog Archives
- Anatomy of a Scam: The Pricing of Knowledge - Looking like a genius is easy... if you aren't too particular about who's doing the seeing
Notable Pricing Quote
"Idealism is fine, but as it approaches reality, the costs become prohibitive." -- William F. Buckley, Jr.
Shameless Commercial Plug
I'm creating a free video course on introductory economics: Business Economics for Non-Economists.
Do you know people who don't understand the difference between supply and demand? Do you work with people who just don't grasp the meaning of cash flow?
Now you know where to send them!