To be successful, you typically can’t compete on price. Instead, you’ll need to offer value in a different way, usually through top-notch product education, service or selection.
While doing some research on Shopify, I came across this statement and immediately thought, which is better, to compete against price or to compete by offering a different, better experience?
When Safaricom came into the market, it was a department of Telkom Kenya, the govt. monopoly in telecoms. They did not offer much except for a bulky portable phone. But, Kencell got licensed and Safaricom had to reshape or face imminent death! They did reshape, especially when Michael Joseph took the reins. First thing he made sure – Safcom rates were the cheapest. Kencell had better quality but cost triumphed, many people preferring cost over quality.
But then, a few years later, Safcom developed additional service offerings. Offerings that were easily matched at first, but then, not again. Per second billing, SMSs, flash-back texts, ring-back tunes and the king of all – Mpesa. And from here on, the calling rates ceased to be the cheapest. But the subscription has never ceased to grow phenomenally!
Another example is Uber. Barely 6 months after their entry into Kenya, they faced their biggest crisis – local taxis complained of Uber’s low fares and eventually reduced the taxis’ market share. But the public favored Uber, and so was the govt, and so Uber thrived. When the threat of Little Cabs and Lyf came calling, Uber resorted to more price cuts. And then another price cut. Only this time, the clientele didn’t see the need for the panic and quite frankly was concerned about business continuity.
Recently, Uber has began to run value-add offerings – partnerships during festivals and concerts, food delivery offerings etc. The govt has also demanded an increase in their prices, to protect the Uber driver-partners. Having evaluated these two scenarios, here’s my two cents:
- Price wars matter when the product offering is so similar, and where the service experience is hard (not impossible) to differentiate.
- Early mobile telephony didn’t have much difference. The subscribers didn’t know of differences. It was a new market. And so price mattered . Kencell became elitist and lost the plot from that point. Similarly, Uber beat the local taxis on the price. Then upped them with better experience. And so took up more market share, as well as grew the market itself.
- The best way to compete – service experience and product differentiation – in that order.
- Even when Safcom was competing on price, there were on the look out for additional services. As such, per second billing won them accolades and customers. Kencell dragged its feet on this, and other minor adjustments. Uber has just caught up to that business concept. It has lost a lot of market share, as well as customer trust due to some consequences of the low fares (some drivers stopped being courteous and the customers began feeling short-changed). They have their work cut out in trying to regain market share. But it definitely won’t be a price war.
This is definitely not an exhaustive look at this topic, nor of the two companies. Other factors may play into the scenarios.
What are your thoughts?