You can have Quality, Service, or the Cheapest Price – pick two, because you can’t have all three.
I can’t even remember where or when I saw / heard this rule (it isn’t my original, but I can’t remember the source – sorry source), but when I heard it….a light bulb moment, a BFO (blinding flash of the obvious – I remember the source for BFO, Casey Gollan – thanks Case)
I use it every day, when I buy, and when I sell.
When buying, the application is pretty simple – If the price is low, low, low, what’s the catch? If you get three quotes, and one estimate seems to be way below the market value, you can usually bet that either quality or service has been compromised. Now that is not to say that a compromise in quality or service is always a bad thing, just a compromise.
For example, buying on eBAy. I love eBay, I have bought & sold some great stuff really cheap – but, there was always a compromise. To buy or sell at a low price, there has to be a compromise on either service or quality. I just bought a nice coffee machine on ebay. Brand new, an unwanted gift. I saved about 35% off retail- great price. The machine is brand new, under warranty, known brand – great quality. Therefore, the compromise is the service – I had to wait for it to be sent, no instant gratification. I take a small risk that the goods will not be as described. I have less rights as a consumer because it was bought at auction. So, the service has been compromised – not bad service, just different. Different enough that I have to decide if it is worth paying more for the better service, or accept the compromise for a better price.
A selling example could be when I sell caps. If a client wants 150 caps in under 2 weeks, with an average size logo we can easily turn that around for about $7-8. Great quality, Fast service, and a market value price. If the client wants to get them cheaper for whatever reason, then of course there are things that can be done, but they involve a compromise of some sort. We could choose a cheaper hat – a compromise in quality. We could print instead of embroider – again quality (it wont last as long) – so a cheaper hat or different decoration doesn’t mean bad quality, just different. We could also compromise the service. If we made the caps to order in the Chinese factory instead of using stock already in Australia, we can reduce the cost of the same hat to about $4-6 – great price. Great quality – it’s the same hat, from the same factory, no compromise. Lesser service – delivery will take 12 weeks, rather than 1-2 weeks (literally a slow boat from China!) So, not bad service, just different.
How can we apply this to our businesses?
Do you have any competition?
Do you ever have to competitively estimate?
Are you in a price driven industry?
Are you in a commodities industry?
If you answered yes to any of those questions (and I think most of us would at some stage) then you must use the rule of three to define your USP.
We need to analyse our own business, and our competitors business to see how the rule of three applies, and how we can use it to our advantage.
For example, if your competitor has a consistently cheaper price than you, what are they compromising on? Do they offer a slower service? A different brand? A lesser warranty or guarantee? A lesser after sales service? A different production method? Somewhere, the compromise will be there (it’s a rule). Once you know what that is, you can then rationally explain to prospects exactly what the difference in features (quality, service) is, and why paying a little bit more could be justified. Now, some people will always go for the cheapest price. And some will be willing to wait for delivery, take a generic brand, live without the extended warranty, give up the free after sales service – that’s ok, let’s face it, you probably couldn’t keep up if you won every single order, right?
It could be the other way. You could be the one whose competitive advantage is a cheaper price. You still need to know what that compromise in quality or service is so that when a prospect brings it up, you can rationally explain why the compromise doesn’t matter – you don’t need the extended warranty because they never break down – the generic brand is made in the same factory as the branded one – you deliver slower, but you deliver right on time (when you said you would). Now some people will always steer away from the cheaper version just because they can (Ferrari would never sell any cars if price was always the major factor, right?) – that’s ok, you probably couldn’t keep up if you won every single order, right?
So, according to the rule of three, where is the compromise in your business, and your competitors? More importantly, how can you use those differences between your competition and yourself to your advantage?
Article By Bren Ryan