Marketing 101: The race to the bottom

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Marketing 101: The race to the bottom

However, small business owners tend to just lower their fees (or prices), as a way to make more sales or attract more clients. They then find competitors do the same (see below) and the race to the bottom (the lowest price) begins. This small business scenario, is what today’s post is all about.

What does the winner get as their prize?

read the article to find out!

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10/07/2008

What do you think about all this in the recent groupon hype?

I mean, that was a major turn of events for the B&B industry (or any of the other groupon-like promotions). Did it pay for itself? Did it bring new customers to our industry? Did it provide quality guests or any loyalty?

Madeleine's picture
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09/29/2011

Depending on who you listen to it was great or horrible. I think a lot of the stories that came out were places using them for short range goals like paying taxes and then hoping the guests would come back at full price.

I don't think anyone in town did it so I don't have any first hand knowledge locally on how it worked out.

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Arks's picture
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05/22/2010

This is so true, and reminds me of the "milk wars" and "gas wars" here in my hometown when I was a child. The grocery stores occasionally raced to the bottom on milk pricing, thinking they'd bring in new customers who would stick with them when the prices returned to normal. The gas stations occasionally battled it out on having the cheapest gas in town.

But, for the most part, milk is milk and gasoline is gasoline. Commodities. Assuming it's not watered down, it doesn't matter where you buy it, it's the same everywhere. So of course you look for the cheapest.

You don't build a bit of store loyalty just by having people enter your store because you have the cheapest milk that week. It's the other factors that create returning customers: speedy checkout, a nice clean store, convenient parking, always low prices*, etc.

The race to the bottom price is a horrible business plan.

* As the article mentions, large corporations, like Walmart, can succeed by having an extremely low profit margin. But small businesses just cannot follow that model and make a living.

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Madeleine's picture
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09/29/2011

We have a minimum milk price in the state. Charge as much as you want, but you can't go under that price. Caused a big rumpus when a new grocery store moved in and they didn't know the law. Figured they start off with a bang with low, low prices on milk. Uh, no. They were turned in immediately by farmers!

But, yeah, we won't lower prices as low as the hotels go in the winter because it's a losing proposition.

Generic's picture
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02/24/2011

We have a minimum milk price around here, as well. It's about DOUBLE what you pay. Let's just say it's over $5 a gallon around here.

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