Low Price Verses Low Cost

Oct 20, 2020

Low Price Verses Low Cost
Every company must determine the price customers will be willing to pay for their product or service, while also being mindful of the cost of bringing that product or service to market. The words “cost” and “price” are often used interchangeably; however, they have completely different meanings.

Price is what a customer pays for the product or service; cost is the total investment is over the lifetime of doing business. The cost of producing a product has a direct impact on both the price of the product and the profit earned from its sale.

You may wonder why some people are still buying expensive items when most of us are counting our pennies and trying to keep every available coin in our pockets. The answer might lead to the truth about value and price. Price is just that – a dollar amount assigned to an item or service. It usually reflects the going rate locally or globally. As a business owner, you want to stay competitive without alienating your target customer base. It is a matter of profit as well. If you come in too low, then you are undercutting your own business and you will lose money. Value (cost) refers to the significance that we apply to a good or service.

If price is one of your advantages, that is great. But remember, you need something that keeps the competition away and secures your relationships for the future. I once saw the message below at a local convenience store: 

  1. Price
  2. Service
  3. Quality

           (Please pick two)

 If you choose to lower your price, something else must suffer. No matter how tough the market gets, a company will have to stick to their principles and sell the value that differentiates them from their competition.

We see time and time again that customers are choosing the lowest price which often results in an increase of the total cost due to quality or lead time issues. Each late shipment and/or order that needs to be returned for rework adds time and significant costs.

The solution: Stop overspending on cost to save on price and get things done right the first time.