Just Say No To Price Wars

by Ed Newman
AMSOIL Marketing & Advertising Manager
This article appeared in National Oil & Lube News, February 2002

Marketing has been defined as getting the right product to the right person at the right price in the right place while using the most precise or effective methods of promotion. In this standard definition, notice how the emphasis is on correct price, not lowest price.

While price is an important consideration in most buying decisions, it is usually not the critical decision. This article aims to show some of the non-price reasons we buy and why using low prices to attract customers is a bad idea.

In the age of science, statistical analysis is being applied to nearly everything-- from how we handle stress to motivations for choosing the pet food we feed our dogs. It is not surprising, therefore, to find that innumerable studies have been performed addressing various aspects of sales and marketing. Trying to figure out why customers remain loyal or switch is no longer a guessing game.

One such study focused on reasons why customers quit coming back. According to consultant George W. Gershefski:

Tactical error
According to Gershefskis findings we see that using price alone to keep customers is an effective tool less than 10 percent of the time.

You have probably done this yourself. You buy something because the price is low, and when it breaks you console yourself with the worn out adage, Well, you get what you pay for. Who hasnt said this? And what does it mean? Low price is equated with low quality. This is an almost universal conviction.

Whats more alarming, however, is that as soon as we lower prices, the competition can do the same. In the book Bottom-Up Marketing, marketing consultants Al Ries and Jack Trout note that lowering prices is the easiest tactic for the competition to copy, and for that reason it is usually a bad tactic. Better tactics are those that the competitor cant quickly or easily imitate.

If a competitor cannot copy a tactic quickly, then you have a chance to pre-empt the idea in the (customers) mind, say Ries and Trout. As far as price is concerned, these marketing gurus facetiously go on to say that if you are solely interested in pleasing the customer, then maybe you should simply give your products and services away.

No Win Situation
The truth is, there are no real winners in a price war. Like many other aspects of life, there are hidden price tags that are not immediately visible with a cursory glance.

A quick lube owner who lowers his prices will necessarily be forced to cut expenses somewhere else. While the initial effects are not immediately felt, the long-term consequences will be directly related to the cuts. When a whole industry participates in a price war the quality of the products or services is bound to suffer.

Consumers have demonstrated time and again that they are able to recognize quality and are willing to pay for it. And while there will always be a niche for low-end products and services, the true quality demanded by the high end of the market will never go out of style.

Alternatives
Once we get away from thinking only in terms of price we then open ourselves to alternative opportunities. One reason synthetic motor oil is not heavily promoted by quick lube operators is because many are afraid customers are unwilling to pay for them, even though everyone recognizes that synthetics are superior to petroleum based oils. This seems strange to me since people pay more for their cars and boats and RVs and other toys than ever before in history. Recession or no, the price of an oil change is actually less than it used to be as a percentage of the cost of a new car.

Once we stop thinking in terms of price we can offer better products, not just the cheapest. We can focus our energy on better customer service as well. Instead of a routine oil and filter change with ten point check, we can offer our customers choices. Instead of one-size-fits-all thinking, we can get in touch with what the customer wants and prescribe accordingly.

I dont know what the numbers are at McDonalds but Id guess that more people buy Big Macs than straight burgers. Why is it that Burger King pushes Whoppers instead of cheeseburgers? Funny how in the oil change industry we push the lowest priced product in our line. Shouldnt it be the other way around?