When I was in grad school, I was a TA for an undergraduate course called, “Introduction to Management”.
Each semester, we taught the students how to use Porter’s Competitive Advantages matrix to create a winning business strategy.
The framework is really pretty simple.
First, you decide what kind of market you’ll cater to:
1️⃣ Broad Market
2️⃣ Narrow Market
Then, you decide if you’re compete on:
1️⃣ Cost: Having the lowest prices
2️⃣ Differentiation: having a unique or superior product/service
Our students had two decisions to make. That’s it.
But each semester, without fail, dozens of students would tell me that they were going to have the best products AND the lowest prices. 🤦🏻♀️🤦🏻♀️🤦🏻♀️🤦🏻♀️🤦🏻♀️🤦🏻♀️
– “We’re going to have organic, locally sourced smoothies (100s of ingredients to choose from), made to order, served in chemical free, compostable cups, and we’re also going to charge lower prices than Jamba Juice!” 🙅🏻♀️
– “We’re going to have the largest fitness facility in Iowa City – rows of Pelotons, a trampoline park, equipment for every type of workout, fitness classes, a swimming pool, childcare services – and we’re going to charge the same prices as Anytime Fitness.” 🙅🏻♀️
This became a running joke between the TA’s because we had this same conversation so many times. 😒
❗❗❗You can’t have the lowest prices AND the best products/services.❗❗❗
But I see creative entrepreneurs fall into this trap all the time too.
If you want to create the best products or services in your market, you’re going to need to charge higher prices.
And if you want to have the lowest prices in your market, you’re going to have to lower your costs (for small businesses, this usually means a lower quality of product/service).
All 4 strategies can be effective if you use them correctly, but you do have to choose. 🤷🏻♀️
What do you compete on?
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