A recent book, The Three Rules (link to PDF), written by Michael Raynor and Mumtaz Ahmed confirms that competing on price is not a successful business strategy.
The two business authors spent five years studying more than 25,000 companies, in hundreds of industries, covering a 45-year span. They narrowed down the list of companies to 344. These were companies whose long-term success was not due to luck but rather to specific business decisions.
They found that these companies did three things in common from which the authors formulated their three rules for how successful companies think:
1. Better before cheaper – compete on differences and not on price (i.e. create value).
2. Revenue before cost – increase revenue before cutting costs (i.e. capture value).
3. There are no other rules – change anything in the business to maintain Rules 1 and 2.
All businesses know that Profit = Revenue minus Cost. To generate more profit, a company can increase revenue or decrease cost. Many businesses will try the easy route: decrease costs, lower prices and hope for increased sales volume.
But Raynor and Ahmed pointed out:
Customers can readily tell if they are being courted with higher value over lower price, and our results imply that they systematically prefer higher value.
They also noted that successful companies relied on higher revenue more than higher volume.
Combining all of this means that a photographer cannot discount their way to success. A photographer cannot do volume and there’s a limit to which a photographer can cut costs.
Simply put, any photographer who competes on price is guaranteed to work themselves out of business.
