It's very simple to think that competing on price will be the most efficient method to go. In reality, competing on cost only cuts profit margins, especially since there's always somebody else who will probably be prepared to undercut you - even if they go broke in the procedure.
It is generally much better, more lucrative, and safer to compete on some other aspect, for instance on service level.
In numerous cases, clients are ready to pay an excellent deal to be given a top-class service, and nowhere is this truer than in business-tobusiness markets, exactly where a service failure can be very costly.
Merchant ships are expensive objects. They cost a great deal to develop, an excellent deal to run, along with a great deal to park in harbors. Having capital tied up is expensive - the ships are only really making money when they're at sea.
Having the ship waiting about in harbor while customs officials clear the cargo documentation adds greatly to the cost of operating a shipping line - a fact that 3 friends (Adrian Dalsey, Larry Hillblom, and Robert Lynn) noticed.
In 1969, the three friends set up a courier service, delivering ships' documentation by air from San Francisco to Honolulu. The difference was that one of the founders traveled using the documentation, taking it by hand from the shipping company offices direct to the agents' offices in Honolulu before the ships arrived.
In this way, customs officials could clear the cargoes before the ships docked. Dalsey, Hillblom, and Lynn became (needless to say) DHL and quickly expanded their personal delivery service worldwide.
At first sight, the price of sending a courier door to door with documents is prohibitively costly, particularly when compared using the postal service, which would deliver documents for much less than one-hundredth of the cost the fledgling DHL company charged.
Nevertheless, the service being supplied far outweighed the price, especially once the courier was in the position of carrying documents for 20 or 30 clients. The price of having documents arrive late, or documents being lost altogether, could be colossal: the 100 percent reliability of the service was worth paying for.
Nowadays we have turn out to be used to the idea of courier services. They are very common (particularly in major cities exactly where same-day delivery can be achieved) and often compete on price. Nevertheless, DHL wouldn't exist at all if its founders had tried to compete against the postal services on price!
Think about what you're providing, not what competitors are charging. Think about what your service is worth to the consumer, not what it is costing you to provide. Ensure that what you offer will meet consumer expectations. Do not be afraid to look costly (and high high quality) instead of inexpensive (and low high quality).
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01202011
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