Wired editor Chris Anderson, who is writing a book on the economics of free, has an instructive post on his Long Tail blog. Here’s an excerpt:
At some point in your life, you will wake up and discover that you have more money than time. And you will then realize that you should start doing things differently, which means not walking four blocks to find an ATM that doesn’t charge a fee, driving for miles to find cheaper gas, or painting your own house.
Entrepreneurs need to ask, “Do my customers have more money than time?” Because I think very few companies can sell to both groups -- those who have more time than money, and those who have more money than time. So decide who you’re selling to, and then run your business accordingly.
For example, if you’re selling to people short on time, having a real person answer the phone is more important than whatever you save by using a phone tree. But if you’re a retailer selling to people short on money, long lines won’t send your customers to a higher-priced competitor.
Here’s the thing for small businesses: If your only competitive advantage is low prices, I think that makes you pretty vulnerable. Because you can’t always control your costs, and you can’t control your competitors’ prices. Here’s what you can control: the quality of your products, your customer service, the value you deliver to customers. If you sell to people who care more about those things than the price tag, your customers won't flee the instant you don't have the lowest price anymore.
Of course, it isn’t black and white -– consumers exist on a spectrum between those who only care about price and those who don’t care at all. But if you’re a business, you should know which side of that spectrum you're trying to sell to.