How to simplify on price
So how does it work?
Traditionally companies aimed to produce better products, and more of them. However, striving to increase product performance tends to increase the price and multiply product and organization complexity, making it harder for many customers to afford – or use – the product or service. When companies become more complex, they often distance themselves from customers and executives lose sight of what they are trying to do. Then the music stops. One or two new entrants decide to simplify and to cut prices, not just a little bit, but by half or more. The new product or service is often inferior but it’s also simpler and much cheaper. Demand explodes and the industry is changed.
How to spark a price revolution
If you are contemplating cutting prices in half, and perhaps then half again, it should be obvious that this is not business as usual. It cannot be done by the usual methods. Three fundamental things must change:
1. The product must be redesigned to make it simpler and cheaper. Here you need to visualise the kind of customers you wish to target.
2. The business system must be redesigned to make the product simpler and cheaper to produce and deliver, and to protect your company against imitators.
3. The business must be scaled up – i.e. sales must be multiplied – as fast and extensively as possible.
Price simplifying offers the prospect of building huge volumes – at low margins, but with growth in revenues and profits that can last for decades. The prize – if you do everything right (i.e. build a unique business system that is so large it cannot be replicated), and if you continue to cut costs and prices and build international volume – is long-term market leadership.