The Grapevine

You Can’t Compete on Price – So Don’t Compete on Price

July 15th, 2015

If you think you’re going to compete on price, think again. It’s never going to end well. Here’s why. [level-members]

Competing on price is a downward spiral to oblivion for independent brick and mortar retailers. (The same is true for most independent online shops, as well, but that’s another story.) There are simply too many alternatives for consumers who are price-obsessed and too many outlets to monitor to know that you are a penny lower – or higher.

And the truth is, shops that rely on low prices are frequently buying in greater volume than you can, giving them a cost advantage. Or they’ve made the decision to use some products as loss leaders – and are big enough to absorb the losses on some products in order to get people in the door. (That’s another often misguided attempt by wine and spirits retailers; this isn’t groceries where cheap milk will get you in the store and you’ll do the rest of your week’s shopping because it’s convenient. People do cherry-pick and load up on, say, Scotch because it’s cheap in your shop and head over to “Yellowtail Emporium” for bargain-priced wine some other time …)

Think I’m wrong? I’m not, and here’s proof: Amazon, the online retailing behemoth announced Prime Day, which they claim will rival Black Friday in the breadth and depth of great deals. In other words, the world’s leading discount retailer can’t rest on its laurels. It has to create even more attractive pricing to keep its customers interested.

That’s fine, except that the rest of the market reacts: Walmart is following suit on its own web property, Add in Walmart’s brick-and-mortar advantage, and this looks like a loser, long-term, for Amazon. There is only so low prices can go before you simply can’t make up your margins on volume.

Don’t get caught up in these pricing wars. You can’t be completely out of touch with the market and may have to forego the quick cash of selling Yellowtail by the pallet-load, but that’s the only way to build a loyal following and a sustainable business. Stand for something else. Stand against mass market wines where you can’t be competitive on price and can’t offer anything of additional value.