Case Study: Case of Price Again, Part I

It’s not new but it feels like a time for a reminder. Lowering price, by itself, is not a marketing strategy regardless of what we sell. In fact, price without the other two parts of the marketing triad (product and sales activities) does nothing but keep us printers poor. Here’s the scoop.

Most of us who had Economics 101 sorta slept through class. Least we apparently don’t remember the fine points for what owners tell me is that as supply goes up; price comes down. And vice versa. Well, I’m here to tell you that not one of your economics professors said that applied to you. And it doesn’t.

Remember that there were LAWS of Supply and Demand? There wasn’t just one law? What we all remember from class (gosh forbid you had economics right after lunch as I did) is that in Perfect Competition, as supply goes up the price comes down. That part is right. But no small business in America is involved in Perfect Competition. There’s the rub.

Perfect competition is like wheat is or coal. Wheat is wheat and coal is coal, right? And a share of IBM stock is a perfect substitute for another share of IBM stock? There can be no differentiation. Also there can be no scarcity as well as perfect information. Well, fact is coal isn’t just coal as there are different types and even stocks are traded without perfect information. But, in general, the theory applies. When there’s a glut of oil, the price of oil comes down and vice versa.

But this has nothing to do with offset, digital, signs, embroidery, screen printing, restaurants, dry cleaners, plumbers or anything else you can image.

Nor does Monopoly like the utilities in your area which have monopoly power and are regulated by the state just because of that. Nor Oligopoly which is typified by auto manufacturers and airlines. Not everyone can start an airline. Least not as easily as a sign shop.

No, we compete in Monopolistic Competition. That’s where there are many firms; no price leader; relative ease of entry into the business (compared to airline for instance); and the same or similar products. Now that’s us.

There are rules of competing here as well but the rule that “reduce the price and the business will flow in” is absolutely, positively wrong. That belongs only to perfect competition.

There are only two long term and three short term strategies we can use in monopolistic competition. Long term we can change our cost structure (like lower costs) or exit the industry (voluntarily or involuntarily).

Now, here’s the important part.

There are three short term strategies we can use in monopolistic competition; but they must be deployed at the SAME TIME.

They are Price, Product, and Sales Activities.

Price: I didn’t say price didn’t matter. I say cut your price in half today and you won’t get twice the business as there’s no DIRECT correlation between price and volume. It’s more complex than that. But I will grant you that price influences volume but not as much as you may think.

That’s because when everything else is equal, price is the determining factor. Therefore the creative among us will never allow everything to be equal. We’ll differentiate.

How? Time and place value is an easy one for starters. We don’t compete with all printers. We compete only with those who can get the job done delivered to the place required at the time required.

And we compete with about four others at maximum in any given account. That’s not because of us, it’s because of them. They usually have about three preferred vendors in any classification on their speed dial as they don’t have time to deal with all printers.

So, those are the ones we compete with and they vary from account to account. Often we have no idea of our competitors within an account. Bad sales management there but that’s another story.

For those of us not on the speed dial, our task is to replace someone who is. One creative way to do that is the way you beat LeBron James; don’t play him in basketball. Create a new speed dial classification, the way quick printers did to differentiate themselves from commercial printers of the day.

So, price is a range, not a specific number. And in printing it is my experience that a price will vary from 50 to 200 percent and the real issue isn’t to understand how those bastards can only charge 50 percent; rather is how can those other guys charge 200 percent and thrive?

We’ll tell you how to do that next month.