Seth Godin on Pricing

Seth Godin posts some thoughts on pricing that would probably make a microeconomics professor cry. But I get the point he’s trying to make. The problem with his thesis is that while pricing is a marketing decision, it is also fundamental to how a business architects itself.

There are two generic competitive strategies that a business can pursue; do it cheaper or do it better. If you do it cheaper, you architect your business for operational efficiency and generate profits through higher turnover. If you do it better, you invest in creating differentiators that can that can justify a price premium and make profits through higher margins.

Seth rightly points at Walmart as the classic example of doing things cheaper. They strive for operational efficiency and make a fortune by selling lots of low margin products. Starbucks, who Seth also seems to respect, is a great example of doing things better. They’ve created a customer experience that allows them to charge twice as much as Seven Eleven next door and reap higher margins.

Very few companies are able to “create a blend” of high and low prices as Seth suggests. In fact there are numerous examples of companies who have tried and failed.

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