It turns out that price isn't everything. As I stated in a recent post on Trust and Relationships, price is a relatively small driver of customer loyalty. Only 13% of customer loyalty is determined by price, while relationship is 30% and experience is 20% of the loyalty puzzle.
So when I came across a HBS Working Knowledge article on the Cheap Chic strategy at Target, a major US discount store player, I was interested in how Target is competing with the godzilla of price, Walmart.
It turns out that Target has successfully competed with Walmart by being different, and having a strong communication strategy, even though they are perceived to be worse than Walmart on pricing.
In another article in HBS, Your Customers, Use them or Lose Them, a case study of Commerce Bank, shows that competing on service rather than price can be very successful. Some people are willing to pay more for better service.
Lesson Learned: Price is important, but it's not everything in the competitive arena. If you can differentiate on service, quality or experience do so, but make sure you deliver against that promise, or you'll be charging more for the same thing -- which really alienates customers.
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