How can companies avoid the race to the bottom by competing strictly on price?
Two or three years ago, a competitor announced they were giving away a million free copies of accounting software. They couldn’t get customers to take them. Why? Because the initial price is almost irrelevant to customers who are going to use software 10 hours a week to run their business. If I need one or two extra hours of help from my accountant, that more than covers the price of the software. When I was selling medical equipment for GE, buyers didn’t focus on the cost of the equipment. They focused on the life-cycle cost of owning, maintaining and upgrading. The companies that are generally weakest lead with price, but the best company in every industry generally has higher prices and better value. Q: Last September, Microsoft released Small Business Account to compete with QuickBooks. By some counts, this is Microsoft’s seventh invasion you’ve fended off. What’s the best response to a move by a competitor so formidable? A: Watch what they do very carefully, learn and respond. It’
