22 years after the Dot.Com bust and there are still armies of would-be entrepreneurs looking to build eCommerce businesses by throwing together a catalogue of drop-ship products, electronic shopping carts, and customer review systems, thinking that this lean business model will allow them to compete successfully on price and become digital millionaires. It is actually quite easy nowadays to build an eCommerce business using online templates and plug-and-play modules; however it is exactly because it is easy to do, building these lean-template businesses, that makes it difficult to differentiate, defend, and ultimately make profitable.
It is accepted, albeit controversial dogma in business school that Discount Pricing is not a strategy, but a tactic. Michael Porter, the godfather of contemporary business strategy, made the case that competing solely on price was a tactic that was easily copied, since any business could reduce costs, improve efficiencies, and boost volumes, without being able to build some sort of defendable walls to keep competitors away. These walls take time, effort, and/or capital to build, grow, and reinforce for the business behind the walls to be protected from competition so they can raise prices, and ultimately raise margins.
Strong brands, unique services and service delivery, intellectual property, unique resources, and unique talents are among many ways of adding extra value for the consumer and building defendable walls that make, mark, and show a difference for the business, its services, and its products versus those of competitors’. These value-adds bring in the consumer while the walls make it difficult for competitors to copy and compete with the business. But again, those walls or barriers to competition take money to create and grow, which means higher expenses, which then means higher prices and hopefully higher margins as well.
Apple with its strong brand; Starbucks with its unique service; Microsoft with its patents; and LVMH with its unique talents all command high prices and very high margins. They are highly differentiated businesses with highly defendable competitive positions. Whether traditional or digital, businesses need to find a defendable way to be different from the competition; a way to be able to add extra value to the consumer so they can justify higher margins and higher prices.
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