One question we hear more often these days is, "How can I compete with Company X when they're always cutting price?"  There are many variations on the question but the essence is still the same: "I'm not able to keep on competing by cutting my price or matching others and I don't really know what else to do!"

Getting the Right Frame of Mind
As a first step in competing on some other basis than price, it is most important that you be able to put yourself into the mind of the customer so that you can gain your most important knowledge:

What are they really buying?
It's not the product or service and the associated features; it is the solution to a problem or the satisfaction of a need or want.

It's also not likely or at least not very common that these important reasons are the ones YOU think they are based upon all your experience or upon answering the question, "Well, if it was me, I would ..."  If it were to turn out that you ARE just like the customer, then these observations would be accurate.

Invest the time and money to get these answers from the customers themselves.  It is also worth getting this information from the variety of distribution channels [intermediaries] that you serve and which serve you.

How do they choose?
Most of the time, we assume they buy our particular product or service because of all the nifty features we packed into it that solve their problems or satisfy their needs.  This turns out to be only partially true for a majority of customers.  Customers very often proceed through a two-step process to get to their final choice:

First -- they find the top 2 or 3 candidates that seem to satisfy their needs overall.

Second -- they evaluate the finer points of each possible product or solution and make a final selection.

When detailed investigations have taken place to discover the factors used by customers to make decisions in each of these two steps, some surprises emerge.

The Short List
Getting your product or service solution onto the customer's short list of choices, whether they be the consumer in the grocery store or a corporate buyer in the B 2 B arena, involves your features, benefits, function and relative price compared to those benefits or functions.
 
There is also some element of the company that is usually the perception that the company will be around or has a reputation for satisfaction.  In this step, price does not have to be the lowest, only in the ballpark, which is normally a range of as much as 15% of the lowest.

The Final Choice
Getting picked by the customer as the final choice has to do with the customer's perception of how well they will be satisfied with the product or solution.  The investigations into the factors used in this process showed most of them are the "emotional" factors that have to do with such things as:

• Ease of use    
• Color   
• Style   
• Easy to do business with [your company]   
• After sales service, technical support    
• Reliability, reputation

Apparently this is because the "rational" factors have already been used to develop the short list.

So it follows that, in part, the problem with competing on price is that it's not as important as it is thought to be and, in addition, it is not the determining factor.

In order to compete on something other than price, we have to find out what the other decision factors are and find them out from the people that actually make the decisions. In order to compete on something other than price, marketing and sales staff need to be educated on the other elements of the buying decision and on how to mold them into a true value proposition.  Unless, of course, you are the lowest cost producer, in which case, compete on price.