The Perils of Low Price

They invariably invaded the market vehemently, with promotion price that seemed to last forever. Low price was their only “weapon”. They swept the market and left the branded but less competitive products wept at a corner, praying for their lives.

Their success has made them stand tall for quite some times, until the next low-price predator marched in to give them a blow. There’s no loyalty, the market will embrace the predator without hesitation, turning the predecessor another vulnerable prey. Their dying cries of so-called better “quality” and “support” than the new rival has no appeal, because it never was in the consideration list and it was never offered before.

The truth of the matter is, price beats price.

There will always be some cheaper priced products out there. Big companies manufacture low price products by running production 24-hour a day, volume component purchases and low labor costs. Size does matter; that’s the economy of scale.

But small companies can sometimes do things miraculously. They offer almost the same quality products with even lower prices. They're like cockroaches when the mighty falls; they’d survive for another million years. To them, size does not matter; survivor instinct prevails.

Whether size does or does not matter, the logic is, price is easily beaten by price. Since price is their only “weapon”, the strategy of the battle has always come down to price war and instead of bringing them benefits; they gain so little even they won the battle.

I was informed that in some countries where price is being made a more sensitive issue than religion, due to the economic downturn, new competitors can easily pound on the same door using the same strategy, initiating a fiercer price war than ever.

Desmond Wong (left) and me

Desmond Wong, executive director of AMTC, a distributor, flew from Sabah (East Malaysia) to visit FingerTec last week, told me that they have been approached and offered with some products from China frequently, undoubtedly lower price than FingerTec.

“I welcome their price discount, but afraid the same discount would apply to software features, service and product quality and reliability.”

After we chatted a little longer, he finally broke into a big grin. “I can make better profit with FingerTec because the customers could feel the worth. If I sell China products, I have to succumb to market force by lowering my profit margin.”

And now it was my turn to break into a big grin thinking of the reality of the situation. Despite the economy downturn, AMTC's FingerTec sales improved by 60% last year.

FingerTec is not an alliance in the price war; in fact we choose to stay impartial. When two China products engage in a price war, we are always not included; but when the sales being awarded, we are not always excluded.

Why so? Because price is not our only strategy, we have many.

by Teh Hon Seng, CEO, FingerTec HQ