Last November, I went back to the university - to teach.
Not a whole lot of commmitment, but just an Entrepreneur subject to a Masters of Management Program 3 hours a week for 14 weeks. It has been more than 3 months since I started, and it has been fulfilling and educational. Getting their feedbacks and listening have not only meant that I taught, but also learned.

I noted that one of the cardinal things a new entrepreneur will always try to do - when asked how he could be successful in penetrating an established market is one strategy most people will always do — price your items lower than the competitors.

If we unabashedly believes that the goal of business is to maximize profits, then you should note that there are 2 ways that you can do it. If profits is actually the result of revenues minus expenses, then you know that if you Increase your revenues, or decrease your expenses, and the amount in between becomes bigger, which primarily should then be your prime focus.

This is something every business person knows, but I think the crucial part is defining what is revenues. Revenues usually comes as a result of selling price multiply by volume, and as a result, they try to maximize revenues by cutting selling price in the hope that it would accelerate volume. This sometimes lead to unexpected repercussions, and I would rather say that the first way to do it ( is to maintain volume but increase the selling price).

1.) Conduct your business in such a way that you can sell the product at a higher price on average compared to your competitors.

Yes, higher price. NO matter whether it is because of better quality, better value, more market awareness, better branding, or better design, the way to success is to come up with an offering wherein businesses and individuals are willing to pay a better price to do business with you. If you look at the world’s most successful companies, whether it be BMW, Coke, Microsoft, Toyota, Apple, IBM, HP, Nestle, Starbucks, and others, you will find with utmost consistency that they are not the cheapest - and the definition of success is indeed that people pay a premium to do business with them.. Starbucks is successful because people are willing to pay 5 dollars for their coffee even if the competitor across the street is willing to charge only a dollar fifty, and it costs you actually only 10 cents to make your own at home. You cannot be a success for long unless you have better facilities, better branding, better salaries and benefits for your people, and these are things that cannot be compatible with you offering the lowest price, or jeopardizing your business or your shareholder interests with getting a lower margin.

Success is when you can charge higher than competitor, and customers still want to do business with you. If you work for a company, would you define yourself as successful if you feel that you only got the job because you were willing to accept a lower salary than everybody else?

2.) Decrease your cost of doing business or of producing a similar product compared to your competitors.

But ahh! you said. What about Walmart? They advertise lower price everyday! Or McDonalds. Yes, Walmart has been singularly successful in being able to focus you that they have lower prices, and as a result, have become the largest company in the world. But the success of Walmart is not about lowering prices. It is about their ability to lower their cost thus increasing their ability to lower prices.

If you see the history of corporations, you will see breakthroughs of companies because they were able to penetrate markets based on offering lower prices. Kodak got its wings at the turn of the 20th century because while competitors offered cameras and film for more than 30 dollars, they were able to offer a package that was much easier to use for less than 3 dollars through innovation and new product developments. Ford is famous for its model T in which he succeeded, through mass production and mechanization, to offer a car that was less than half the cost of conventional cars ( famously for offering less customization options), while being able to pay his workers a higher salary.

In short, don’t offer lower prices, unless through volume or efficiency, you are able to have a roadmap in which you are able to lower your cost. There is no meaning to offer lower price ( and as a consequent lower margins compared to your competitors) unless in the long run, it will not allow you lower expenses ( either through volume or other efficiencies).

You can price lower than your competitors to initially take a slice, but as a long term strategy, you don’t want to be doing that. Focus on 2 strategies: a.) increase the price that your customer is willing to pay you. b.) Look for ways to see how you can lower your expenses as a factor of per unit production, and if you can do that, then yes, it is a viable strategy to offer a lower price.