Competing on Price

Folks,

Last summer I went with family to the Shakespeare Festival in Ashland, Oregon
and so I am now on many more mailiing lists. Today I received an offer for a
"free" seat cushion if I book a room now for this summer. It is a good example
of a bad idea.

Since most of the plays are outside, and the benches weather-resistant hard, a
seat cushion is nice to have. But if I want one, I'll buy one. When I book a
room, I want a room, not a room-and-a-seat-cushion.

Of course, the seat cushion is not free, it is in the price of the room. Also,
booking the room now encumbers the credit card, which for some can be a problem.
Hotels now have cancellation policies, and are a revenue generator for the
hotels on the forgetful. (I read somewhere that 20% of gift certificates are
not redeemed, meaning the gift certificates gain 25% for the vendor for nothing
at all. A neighbor of mine who developed the Starbucks coffee card confirmed the
numbers.)

If in fact the pillow is free, that is to say the hotel is willing to take say
some $10 less on the gross revenue of each reservation to cover the cost of the
pillow, then the hotel is competing on price? Of course. How come? Because at
the higher price, people prefer other hotels? Why? The answer, whatever it is,
cannot be good. Either way, the hotel has guaranteed that I will not register
with them.

Further, what has the hotel inflicted on itself? Who does take the hotel up on
its offer? Different clientele. People who want free things, people who think
one free pillow is good, and some towels too is even better?

Ogilvy says "key every ad" by putting a coupon for something 'free' in the ad.
In this case what is free is say a brochure that tells why you are special, or
something normally given away anyway. Like the auto dealer who will give you a
free test drive.

Problem with that advice for we start-ups is we cannot afford to advertise, or
more to the point, advertise what? We pick the product area we work in, then
our custoemrs are constantly redesigning our products... we have no idea what
we will be selling specifically next year, so we can hardly "promote it."
Happily, as mentioned in the book, we do "ad allowances" where we gain great
benefit by piggy-backing our items in ads retailers are running anyway.

Competing on price is something we tend toward naturally, and the results are
disastrous. If sales are not what we think they should be, redesign. Far
better for the hotel to have sent me a feedback form and if I fill it out and
return it the promise of my room choice at reservation time (something hotels
can do for free but usually won't.) I'd tell them I want my coffee creole in
the morning, my wife wants soy milk in hers, and if they comply, they'd own me
as a customer.

Compete on design.

John

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