Live By Price, Die By Price
K-Mart dominated the low price position, until Wal-Mart took it away from them. Now K-Mart is in shambles. This is a demonstration of the high risk of buying business purely based on having the cheapest prices. There's no doubt that you can essentially buy business by undercutting competitors' prices. You can also build a business entirely based on price, as Motel-6 demonstrates. But history tells us that the cheapest price businesses are much more vulnerable than the highest price businesses. Here's why: the Nordstroms customer prefers Nordstroms for a combination of reasons, including quality merchandise, knowledgable and courteous salespeople, legendary service, pleasant shopping environment, satisfaction guarantees, etc. vs., say, the K-Mart customer who would prefer shopping elsewhere if it wasn't for their need for the cheapest price. A competitor need alter only one factor - price - to steal customers from a cheap price vendor. But a competitor must alter a number of factors to steal a customer from a Nordstroms.-----------------------------------------------------------------
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