Oh, for the good old days!

To win your market, reducing value and raising prices won’t bring success

Remember when companies actually competed with each other for market share? Admittedly, some areas of high tech and other industries still compete ferociously, but all too many companies seem to just follow the leader.

We’re experiencing high inflation, and so many companies are reducing the value of their products and simultaneously raising prices. For instance, cereal boxes get thinner (less product; we’re not supposed to notice), while the price goes up.

The rationale seems to be everybody else is doing it; why not us? Protecting those profit margins is ever so important.

Unfortunately, when they do this, they often find they’re making less money, so they raise their prices again. Even though it doesn’t seem to work, it’s become a regular occurrence for many companies over the last few years.

We have to wonder what they teach in business schools nowadays. Many of these companies are run by MBAs and/or people with advanced degrees. Hasn’t anyone ever told them you can’t become a market leader doing what everybody else does?

Incidentally, this is not a new reality. Henry Ford’s board of directors once took him to court because he kept lowering the price of his cars. These folks were already making a lot of money on Ford Motor Company stock, but they felt he was giving away some of their profits.

In court, Henry explained that every time he lowered the price, he made more money. Yes, he made a little less per car, but more people could afford to buy them, so he sold a lot more cars, and his total profits went up.

If you’d like a more recent example, look at the computer industry, personal computers or even just laptops. When they first came out, they were quite expensive, and most were bought by companies for employees to perform specific tasks.

Laptops have consistently become more powerful while prices came down. I recently saw one advertised for $300 brand new, although it certainly wasn’t very powerful. Now, it’s almost hard to find somebody who doesn’t have at least one computer — and by the way, smartphones count.

If you wander around downtown Chicago, you’re apt to run into a stately old skyscraper called the Wrigley Building. It’s located on Michigan Avenue, often called the Magnificent Mile. Years ago, it was a very prestigious address.

On the north side of Chicago, the Cubs play at Wrigley Field. William Wrigley made his fortune making and selling chewing gum. He made very little from each package, but he sold an awful lot of packages.

Increased volume means increased profits, and it’s really hard to increase your volume while cheapening the product and raising prices.

If you’re not satisfied being an also-ran, reverse course. Make your product better and sell it for less! That’s how you take market share. You may make less on each sale, but you’ll sell a lot more.

You might even want to get your suppliers in on this. You’ll be buying more from them, so it’s reasonable to expect better quantitative discounts. You can become their favorite customers paying less per item. It doesn’t only work for Henry; it works for everyone.

Earlier in my career, I worked for a company that sent engineering teams to suppliers to help them improve their processes, improving quality while reducing costs. I used to lead some of those teams, and I can tell you we weren’t using rocket science.

Your competition is probably comfortable raising prices for less value, systematically angering their customers. They will be looking for more reasonable alternatives. Why wouldn’t you want to become the beneficiary of such foolishness and inherit their business?

During inflationary times, many companies are looking for ways to cut costs by cheapening their products. That’s hardly a winning strategy when your customers are looking for ways to get more value for their money. Yes, you absolutely want to reduce or even eliminate waste, but if you want to win, don’t cut the value in your quest.

Trying to barely survive is much too difficult; trying to win may not be easy, but it’s easier and a lot more satisfying. Go for it.

Ronald J. Bourque, a consultant and speaker from Salem, has had engagements throughout the United States, Europe and Asia. He can be reached at 603-898-1871 or RonBourque3@gmail.com.