There’s an old saying: “If you live by price, you may die by price—unless you’re the market leader.” Chances are if you’re a small business selling commodity-type products, you won’t be the market leader. Do you really want to go head-to-head against the massive discount stores and low-cost service companies on price alone? The low-price leader must make up the lower cost and potential lost profit with a higher sales volume, but what if that volume is not there? Once you’ve reduced prices to be or match the lowest price, it’s difficult to raise prices again if the volume is not what you expected.
By offering products at a super-low price, you also run the risk that another merchant or middleman will buy a large quantity from you and resell the product at his or her business with a high markup. If you’re paying the shipping, stocking, and display costs, why should someone else profit? Fortunately, you can help avoid this by limiting the number of items that a single person or group can purchase at one time. But people can get around this restriction by coming back on multiple occasions or ordering several times and having associates purchase for them.
And prices on some things never stay the same for very long; they’re constantly changing based on various market factors. Look at the price of bananas or gas for your car—those prices sometimes change daily or weekly! And these aren’t products people can stock up on, either, because bananas will spoil, and it’s not exactly easy to store extra gas. Trying to build a business based on price is not only risky, but it’s also very stressful for the owner.
Fighting the price war is a frustrating and many times a losing battle, and it is not for most small businesses. So, don’t start it—and don’t be lured into it unless you’re sure you can succeed. Chances are you will see more frustration than success.