Business – Lead or follow

Reading an article about downsizing basic research at HP and thinking about Guy Kawasaki’s latest book made me realize that businesses have only two choices: compete on quality or compete on price. Competing on price is brutal. Almost everywhere, some company has such a large price advantage that it is virtually impossible for anyone else to compete effectively in terms of price. Think of Dell, Wal-Mart, Southwest Airlines. So the only real alternative is to compete in terms of quality. Put it another way, unless you want to focus completely and totally on efficiency, someone else will beat you on price. Otherwise, compete on quality, and stop worrying about total market domination.

Want examples? Apple is not chasing Dell on price, and they’re profitable. But HP is trying and failing. (How much shareholder value did Carly cost?). In retail, there’s Wal-Mart, there’s a litany of companies put out of business by Wal-Mart, and then there’s companies that compete in terms of quality or service. Target tries to bring more fashion and clean, neat stores. This lets them get away with having slightly higher prices than Wal-Mart. Nordstrom makes you feel like a Queen or a King. But Macy’s makes you feel like you’re just a nuisance to the sales staff.

I think you can guess which game I’d rather play.

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