Go to market by dumping - is it the right thing to do?
Many young startups, attracting investments and small businesses consider the ability to give a low price as their main competitive advantage. But let's understand when such a strategy justifies itself, and when it carries great risks and will be a red flag when looking for an investor.
Sometimes short-term dumping can be used if necessary:
- to make a brand name in a new market;
- to get a key customer (but you should understand whether there will be an opportunity to raise the price later);
- to sell out illiquid items;
- to substantially increase the volume of sales and thereby reduce production costs; a lowered price for one item allows you to sell others profitably in a bundle (this method is often used by retail)
- "Create a unique selling proposition" (we include this point because it is often used when making a comparison table with competitors). BUT
Long-term price decreasing to the costs rate or even lower calls into question the feasibility of the company as a whole and the availability of USP. By creating a real value proposition for the customer, you won't have the need to dump.
Risks coming with dumping. For an investor such a business won't have much value.
- too low a price may tell users of poor quality;
- you may initially get into the wrong segment, where you have to fight the competition with price rather than with service/quality;
- competitors will retaliate by lowering their prices, leading to an overall drop in the price of similar products and it will be much harder to get them back;
- your business may not be able to withstand declining profits;
- very low profits make it impossible to grow quickly.
Although dumping strategy is the most popular and probably the easiest way to enter the market, it will not work for every business project. Here are a few examples when dumping is not necessary.
The partner search app Tinder, well-known to many, has chosen as its strategy for gaining an audience not to price competition with dating sites, but to solve problems that have discouraged many from using them. For example, receiving messages from unwanted users.
Startup Cradlewise. "Smart" crib can track baby's sleep phases and turn on the necessary rocking mode. Such a crib costs up to $2,000. They don't need to play price wars with other smart cribs thanks to a feature set that solves this problem much better. And you can put a price on it that people will be willing to pay for it.
What other methods can be used when going to market?
- Waiting list or personal inviting (imitate of scarcity, remind the recent sensational Clubhouse go to market)
- An influential network (who can do native promotion)
- Business partnerships with successful players
- Referral program
- Combination of online and offline
Next time we'll tell you about interesting go to market strategies you can use to start your own business or to attract users more effectively. Keep an eye on our blog.
What examples can you name the pros and cons of dumping, interesting to know your opinion in the comments?