As businesses go to market with a product or a service they are quickly confronted with the need to compete on price. The questions here is “Should we?” In 1985, Harvard Business economist Michael E. Porter gave the world some tools to answer this question in his book Competitive Advantage. In the book Porter postulates that startups and small business (those with small market share) can only compete by being different. As these companies grow and capture larger and larger shares of the market they can then begin to control the market and supply chain in a way that allows them to control costs (think Walmart).
The difficulty here lies in your brand. How do customers identify with you? Are you the cheapest, the best, or the only one who can provide a given product or service? If you are trying to compete on cost in some cases and on quality in others, your brand gets confused…you’re lost…and your brand shows it. This in return drives your costs up and your revenues down resulting in lower profits as shown in the figure below.
The takeaway here is, decide how you’re going to compete and own it. Good luck!