You gotta differentiate to dominate
Thousands of people lined up to be the first to get the new iPhone last week, as usual. Didn't they notice the iPhone 6 is really just the Samsung Galaxy 3 from a few years ago!?* Larger with a thinner screen, it's exactly what Apple fans "didn't like" about the Galaxy 3. Given that the Galaxy is $174 and the iPhone 6 costs between $649 and $949 a piece, and the cost of production is likely the same for both, that's almost $500-$800 additional profit made on every single sale due to Apple's badass brand.
Which leads to my next question: why is everyone so concerned with their gross revenue when they should be talking about their profit margins?? The focus on total sales is cheap-- just because a business is “making” millions of dollars doesn’t mean they are doing well. In fact, many of them are actually operating at cost, or even at a loss!
Think about it this way: Would you rather own a $5 million business that generates $50k in salary? Or a $500k business generating $200k in salary?
There are only 2 games in business: Compete on Price or Differentiate (i.e. don’t compete at all)
How do you know which game you’re playing?
If you ever find yourself competing on price, or losing to a lower priced alternative, it means you haven’t fully articulated why customers should choose you over everyone else.
Differentiation = Higher Profit Margin
I’d rather sell ⅓ the number of products at 3 times the price then 3x as many products at a ⅓ of the price for 3 reasons:
- Fewer headaches from fewer customers and lots of room to treat existing customers like gold (because it’s not eating up your profits)
- Good Night Sleep- when competing on price, you never know when a competitor might come up with a way to undercut you, so you’re always in a precarious spot (think about what online printers have done to the printing business, or LegalZoom did to CPAs)
- Brand value is worth $$- a differentiated brand (demonstrated by the ability to sell at 3x the price) is worth serious dinero, completely separate from the company’s assets, processes, etc...
A business that can charge a premium has taken itself out of the price competition game, differentiating itself into higher profit margins.
First figure out what game you’re playing in, and decide if it’s the right one for you. If price competition is your game of choice, make sure it’s exactly that: a choice. For everyone else, if you find yourself defaulting to price competition, consider investigating how you can move up the value ladder, charge twice as much, sell half as many, and take home way more at the end of the day with less work.