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Price Competition

There’s a huge pharmacy chain in the US called Walgreens that’s been around for almost 120 years.

My Great Grandfather Sidney owned a drugstore in Chicago in the mid-20s.

Grandpa Sidney holding puppies
Grandpa Sidney

Sidney was married five times, had a Navy anchor tattoo on his forearm, loved gambling, and sold alcohol for Capone during the prohibition – these are some of the stories my Mom told me and I loved all of them.

Anyway, Sidney was approached by Rudy (Rudolph Walgreen) with an offer to buy him out.

He told Rudy to politely go f*ck himself.

Sidney wasn’t the only one who refused to sell and so Walgreen (like many companies) decided to use a different approach:

He’d open his shops right next to other drugstores, set the prices of everything below cost, and patiently wait for his neighbors to go out of business.

To some extent, this tactic still works today – but with online shopping, this can only last so long for any industry.

Seth Godin calls this the “race to the bottom” and according to him – everyone loses. He’s written about it much better than I could ever paraphrase HERE.

From the G Coffee perspective, we can’t and won’t compete on price by being $1 cheaper than other companies in hopes of getting another customer.

This is a conscious decision based on three facts:

1 – that we can’t afford to race to the bottom

2 – we do our best to NOT be classified as a commodity that can be replaced with a quelconque (fr. for nondescript) alternative

3 – guests and clients that are willing & able to pay more truly appreciate what we do and can see the efforts we make to set ourselves apart

Companies like Illy, Maxwell House, & Lavazza could literally give away pallets of coffee for free and not feel so much as a pinch to their revenue.

So how can small companies stay out of the shadows cast by surrounding Goliaths?

They have to surpass standards in terms of quality, speed, service, information, integrity, communication, and/or ingenuity.  They have to shine in a way that blinds their clients from any competitors.

A book that really sheds light on how some companies set themselves apart is BLUE OCEAN STRATEGY by Kim & Mauborgne.  Here they case study a number of companies that were in a highly competitive field (‘Red Ocean’) and reconfigured their business model to be in a place that has little to no participants (‘Blue Ocean’).

Let’s take an active example where Price Competition is relevant: commodities.

Take the latest iPhone.

You can buy it on Amazon, eBay, the Apple store, the local electronics store, or your mobile service provider.  The baseline product will have the same features and warranties across the board; the only difference will be the price.

So the iPhone, in this case, is a commodity and the primary differentiating factor is the price – which brings us to price competition. 

The secondary factors are maybe payment method & item delivery.

Once again though, a reseller can set themselves apart by shining in some way – having an expert on hand to explain how to use the product, or fix the product, or have a unique accessory that cannot be found elsewhere.

Our conclusion is that Price Competition:  is a double-edged sword.

On the one hand, it is bad because it encourages a race to the bottom, on the other hand, it’s good because it encourages businesses to beef up their offer.

Grandpa Sidney with my mom

FYI – Sidney did just fine – he had a number of successful businesses – the last of which was the VAGABOND HOTEL in Miami, where he spent the rest of his years in the Florida sunshine.

PS – if you are part of the acquisition team from Starbucks or Intelligentsia Coffee we’re happy to entertain any offers – feel free to contact us HERE 

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