In the past, the decision to be cheaper meant sacrificing margin for scale: “I won’t make so much on each sale, however, I’ll make more sales” is what we justify to ourselves.
The problem with cheaper, is that this assumes:
- There is scale, and
- You can reach this hypothetical scaled market affordably
In the online world, both of these assumptions are becoming less and less true with every passing day.
Firstly, our interests are getting more and more fragmented – there is no ‘mass market’ that can be reached any one way anymore. Instead there are millions of global self organised (oftentimes un-organised) niches and niches of niches, and each has to be reached differently.
Secondly, the auction model which determines the pricing of online ad clicks has meant that the cost of acquiring a new customer in any industry continually rises over time – until eventually it comes very close to (if not even surpasses) the profit made on first sale.
In other words, there will come a day (if not already) when you will break even or worse still, lose money – just to get the customer.
And so starts the inevitable race to the bottom.
Today, being cheaper means sacrificing margin *and* scale.
If you’re already in this position, you have to write off (& somehow fund) the loss on initial acquisition, while working to increase Lifetime Customer Value – a reality for most online businesses in the US for some years now, but a reality facing Aussie businesses today.
But even better, choose to be in a different race, and race to the top instead.
Deliver The Best for the Least for the Most.