Your worst nightmare: Wal-Mart (or your favorite cheap, mass-market competitor) moves down the street and of course, begins to sell cheap frames, cheap lenses, and cheap AR at prices below what you sell in your dispensary. You suddenly find your customer base shrinking because they discover they can buy cheaper glasses down the road, in a store they visit regularly. What do you do?
Your first instinct might be to lower your prices to stop the bleeding. This might even help your business in the short term, but in the long term you could be transforming your worst nightmare into your ugliest reality.
Let’s take a look at this scenario. Chances are you don’t have a sufficient profit margin to support the price cuts required to compete with a company whose model is based on price. But, let’s assume you’ve figured out a way. You’ve cut your employee costs, decided to offer lower quality frames, and found a lab that provides rock-bottom prices on lens processing. So, now you are able to cut prices, your margins are razor-thin, and you are finally competitive on price. You sit back and wait for the price-conscious consumers to return. But why should they? They have already found a source for cheap glasses in a location they are likely to visit a couple times per week and you have no competitive advantage. You are unable to offer better service with your reduced employee costs, or quicker turn around with your cheaper lab, or better frame selection with lower quality lines. And what of your marketing budget? Businesses that compete on price tend to rely heavily on marketing. How are you going to bring people in the door? Fortunately, you’ve shown yourself to be a shrewd business person and you stumble upon the magic formula to get your customer base to return and even experience a little growth. But, there are still problems. Your customers are fickle, loyal to price, not to you. Your margins are so low that even your growth hasn’t returned the business to its pre-Wal-Mart level of profitability. Moreover, the business is riding on the edge: a raise in the rent; an unproductive, low-cost employee; an increase in lab prices; or a few sloppy jobs from your cheap lab could be enough to send it all crashing down. Or at the very least, it could be enough to send you scrambling for alternatives and keep you awake at night.
Unless your business model is centered on being cheaper, much cheaper, and you control the majority of the costs involved in providing your product and service; or you’ve managed to find a low-end niche outside of the mass market - in which case you are not worried about competing with Wal-Mart - cheaper is not the answer. Better and different are.