Business StrategyCompetitionGolden Triad

5 ways to be cheaper – but better – than your competition.

Didn’t read the intro article on achieving mass market adoption like Amazon or Google? – check it out here

Some Garage concepts need deep explanation, but this isn’t one. Nobody likes paying more money then necessary and the company with the lowest price wins.  Many companies have used this strategy successfully and none more then Southwest. With their direct flight, low frills model they provide the same, if not a better, product for a lower price than other airlines. This strategy has created significant results for their bottom line, with Southwest going from ~13% market share and the 3rd  largest US airline to ~20% share and the largest airline in only 15 years

Southwest and others have used thousands of tactics to keep their prices low, but we’ve included five strategies that any company can use. These five also let companies win on price  – without sacrificing quality that will lose customers.

  • What is it? With software, companies can bring buyers and sellers together into a new market that were previously too hard or inefficient to organize. Additionally, software now allows companies to create these markets without owning all the necessary resources, (i.e. Airbnb) with cost savings for all.  
  • When it can be Used? It is ideal for markets with middle men or large rent seeking companies that are leveraging networks that can be replaced with technology. It is unlikely airlines will be beaten by an Airbnb clone, but it is highly likely industries like insurance, package delivery and others will.
  • Examples? Airbnb (hotels from personal houses), Craigslist (used buyers and sellers), Ebay (online auctions)

  • Hows it done? There is never a free lunch, and that is especially true for “free apps” like Google or Facebook. While the company doesn’t charge the user, they still make the same (or more) money than a paid app, by monetizing user data for other companies.  
  • When it can be Used? Any time user actions can be tracked and used to provide data to other services. Some are blatant (Amazon, Facebook) but future services may be more subtle (Google Maps suggesting nearby stores, lyft using your calendar travel times to ask if you need rides)
  • Who’s done it? Google and Facebook (advertising), FourSquare location, Youtube with video ads, Target/Walmart with shopping habits

  • What is it? Smart systems is building tools and processes to maximize human capital. Startups and innovative companies are better at creating lean systems that maximize efficiency and let them compete at lower prices.
  • When it should be Used? For eliminating inefficient processes and automating rote tasks. This is true for internal processes and external (customer) facing processes as well.
  • Examples? Speeding up interactions/payments (Uber vs Taxis), automating tasks (autonomous vehicles/drones and delivery), using cost efficient labor (Southwest vs Legacy Airlines), creating metrics that give true performance insights vs measuring number of hours spent in an office.
  • What is it? Moore’s Law states that computer power doubles each year which makes performance cheaper over time.
  • When it should be Used? It’s ideal for introducing new capabilities that are too expensive today . Some phones are beginning to outperform laptops allowing new advancements like AR/VR or building Machine Learning and AI software at home.
  • Examples? Mobile revolution (Apple, Google), Moore’s law will also enable the autonomous vehicle, drone, and AR/VR revolutions
  • Hows it done? With 3D printing and a globalized economy, new companies are able to prototype and manufacture cheaper and quicker. Previously large companies could use exclusive access to these expensive services as a competitive moat.
  • When it can be Used? It can be used by any company to enter hardware markets with minimal loss and max speed.
  • Examples? Anker in consumer electronics, OnePlus in phones, Snaptecles 
Until Next Time

Companies like Southwest and Uber have used these five strategies to be cheaper – but better – then their competition and achieve market adoption. Next we’ll be covering ways to deliver a better quality experience then your competition – without increasing costs or service time. 

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