Editor’s Note: Today Shopster welcomes the founder of Count Stop, Cameron McGrane, to the Shopster Blog. His experiences in surviving a price war, and his take on the ethics of competition make for an entertaining read and offer up some valuable advice to all online entrepreneurs.
Life was great. I had spent 2 years building a e-bay power-seller store which was starting to pay off. My cash cow products with high margins and partial barriers to entry kept selling repeatably. Our customers and suppliers loved us. We were always there when needed and I was living abroad, working on an exciting new venture that fed off my e-commerce experiences.
I was feeling and acting awesome!
One day my sales started dropping. For the first 14 days, I put the decrease down to seasonal variations. After 30 days, it was obvious a new entrant was selling my product at nearly cost price! “They will go away” I told myself, but after after 45 days and $4000 in lost sales the “the new guy becoming the old guy” was still hanging around!
What did I do? Nothing. I honestly had no actionable task to move forward. I felt paralyzed and embarrassed because I let so much time elapse without addressing the situation.
One thing I did know, I had a deep resolve embedded by one of the greatest business people I have known in person to “Never compete on price”.
This in itself raised the question “How do I compete while maintain my prices?”.
The question nearly gave me a neurosis!
After riffing it out with some business buddies I still had no answers. Sigh. Times like these make you feel alone and you eventually realize that the tough problems can only be solved by oneself.
On day 70, I decided to put my sexy work aside (e.g. creative stuff ), and think about the situation
The words of Oscar Wilde “You know more than you think you know…” infused into my head.
Then then a common sense question came to me. If my product is essentially a commodity what else am I selling on top to warrant the considerably higher price point?
I wrote this list defining what my current store offers:
- Ridiculously Good Customer Support – Fast accurate insight and in depth problem resolution.
- 30 day, No Questions Asked, Return Policy
- Super Fast Processing – Between 1 to 18 hours
- Multiple Payment Options – Paypal, credit card, bank deposit.
- Express postage and execution for urgent delivery
- Sell to all countries
- Custom Branded product
Next I asked “If I was to temporarily compete on price, what would the customer get that differs from above?”
- Basic Customer Support – Only resolve problems that stop item getting to customer’s door.
- Limited Refund – Exchange for store credit within 3 days.
- Low Priority Processing – Up to 3 days
- Limited Payment Options – Paypal only
- Standard Postage Only
- No international shipping
- Unbranded product
By splitting things out and thinking about another distinct offering, I was able to make a mental leap in the form of running TWO stores. One “Premium” and One “No Frills”. And as it so happened, I had a shelfed e-bay ebay store with quality feedback I honestly had forgotten about..
Shady you say? I was worried too. I’m a straight player and value transparency so when the sales came through at the lowest price point in the market using my no frills store. I explained the pros and cons of the two stores to my customers so they had more options next time they chose to buy from me.
Day 75 – My margins sucked but I was turning inventory over, getting brand recognition and seriously making my competitor question why he took on this niche.
Over two weeks, I noticed “that guy” slowly raise his prices as sales and started unloading the products in bulk which my “no frills” store was more then happy to take off their hands to restock the premium store.
Day 90 – Sales have increased, the heat is off and I am living to fight another day with a few lessons to share
- Acknowledge there is a problem - Like people at AA do. My new unprofitable venture was messing with my priorities. Ultimately you should never neglect the businesses making you money!
- If it your first time in a price war you have to fight - Fight early – hopefully this story will provide you inspiration to start fighting ASAP
- You know more than you think you know - Trust and challenge yourself to come up with an actionable strategy. Ultimately you can only depend on yourself.
- Build strategic assets - I didn’t realize my extra store was an asset. What other assets do you have?
- Don’t assume customers only buy based on price - People have different needs to be met. And every market even with commodities has openings that can be leveraged to access different types of customers.
Tip: Terapeak research can help discover such insights
AND finally DON’T COMPETE ON PRICE and if you must, do it creatively and temporarily with a clear focus on your differing customer offering.
Cameron McGrane is founder of Count Stop, a service enabling internet retailers to automatically track and report on profit, costs and competitor events.
References:
Image courtesy of http://www.flickr.com/photos/nzbuu/
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