Jack Cohen, the founder of Tesco, coined a famous phrase, ‘pile it high, sell it cheap’. I should point out at this point that the current strategy of Tesco’s does not embrace this concept!
The idea behind the concept, of course, is to buy a large quantity of goods, at the cheapest price possible, and undercut the competition by offering the customer large savings. The downside is that the quality of the goods was not always equal to the competitors.
When it comes to services, how does the ‘pile it high, sell it cheap’ philosophy work?
Care at home, also referred to as Domiciliary Care, may not be the first sector that springs to mind, and yet many organisations are now turning their backs on the traditional, local authority contracts because they simply can’t cope with the ‘cheapest wins’ strategy demanded by these types of contract.
The strategy of a business has to be to succeed, but not at any cost. The main danger of the ‘pile it high’ philosophy is that, at best, an organisation can turn itself into a group of ‘busy fools’, constantly chasing turnover and paying scant attention to the net profit, the bottom line! At worst, they end up cutting their margins so close to the bone that there’s no profit left at all and they go under.
That’s not say that it doesn’t work, Tesco’s used it as a foundation stone to becoming the largest company in the UK, and keeping a close eye on the costs of goods and raw materials is only common sense in business.
The other side of the argument is using high quality as a strategy.
The superior nature of the product or service could be demonstrated by the design, or by the robustness, or, as in the case of a service, by the quality of the after sales or customer care. The more the perceived value of an item, the greater the likelihood is that some consumers will be prepared to pay more for it.
This has the benefit of reducing the need to sell as many units, whether those units are bananas or hours billed, and yet achieve the same net profit.
The fact is that consumers will pay varying amounts, often for the same product or service depending upon their perception of the quality of that product or service.
This is where the ‘smoke and mirrors’ comes into play, the ‘black arts’, otherwise known to you and me as ‘marketing’!
Take Red Bull for example. Red Bull is an energy drink, it’s roots lie in Thailand, a chemist called Chaleo Yoovidvya developed a drink in the mid 70’s to help blue collar workers, mainly truck drivers, to stay awake during their shifts. A visiting Austrian businessman, Dietrich Mateshitz, noticed that the drink called Krating Daeng, helped cure his jet lag. Several years later Red Bull was born. All very interesting, how does it add anything to this debate. Krating Daeng is marketed to low wage workers in South Asia as a drink that will help them to remain alert whilst doing their jobs, and is priced accordingly, Red Bull was initially marketed in Austrian Ski resorts, to help wealthy westerners make the most of their ski holidays. It quickly caught on, helped by the reputation as a drink which allowed users to stay up late and party until dawn! Hence the slogan, ‘Red Bull gives you wings’.
So a product which is largely the same can serve two distinctly different markets, as long as the marketing proposition supports the perception to the consumers that what they are getting is a, good value and b, doing what the consumers believe they want it to do.
There is no right and wrong strategy for a business, it’s up to the board of directors to choose one which works best for their organisation, price a product too high, and no matter what the perceived benefits are customers will vote with their feet, Betamax versus VHS demonstrated this case perfectly, cut margins too low to attract customers and the organisation risks trading turnover for profitability, the demise of Woolworth’s proved this fact.
As usual in most of these instances a stance somewhere between the two is usually the best policy, but once a strategy is chosen, don’t be afraid to defend your position in the marketplace, whether you’re selling at a very high price or a very low one make sure your marketing supports strategy 100%.