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Comment by wensing | Hacker News Reader

One word of caution--do not, I repeat do NOT, focus on price ("we are cheaper") as the main reason for people to use you. People who are "priced out" of other solutions still need to buy in to whatever you are doing, beyond price, or else you risk losing those customers to your competitors should your competitors offer a cheaper/simple plan.

You're off to a great start (I just signed up for the beta), but make sure you do the hard work of selecting your target customer ("who will we NOT serve?") and don't preach price--preach superior experiences.

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Exactly. Or, if you do want to compete on price, make sure you're competing for the customer set who cares mostly about price. This is usually a less sophisticated and less needy customer base, which can be a good thing. But it's also a less stable customer base, and generally, you need that many more customers just to get to the same revenue potential as a handful of larger customers with a more expensive product.

There are tradeoffs everywhere; just make sure you know which ones you're seeking and which ones you're consciously avoiding.

In my experience, "the customer set who cares mostly about price" is almost always never the "less needy customer base."

In my experience, the customers set who cares least about price are almost always the least needy customer base.

Just my anecdotal experience.

Depends on the category, really. Also, by "needy," I'm talking primarily about preferences for, or requirements of, feature richness. Really should have phrased it as "fewer (feature) needs" rather than "less needy."

philosophical aside: a low-cost business model is a legitimate disruptive strategy, which many startups follow with respect to physical businesses: travel agents, newspapers, retail, maybe hotels etc. Lower costs enable unmatchably lower prices. I agree with your practical advice; esp when applied to co-disrupters, who also (should) have low costs.

Agreed, but if I were in those industries I would market the superior experiences those low-costs allow us to deliver, with price merely as an enabler (makes product a viable alternative to commodity/free option, or an accessible entry into something previously reserved for kings).

Example #1: Zappos has low costs vs. bricks and mortar so they can afford to do free shipping overnight.

Example #2: Southwest has low costs so they don't have to charge for bags.

Example #3: ING Direct has low costs so they offer a better interest rate.

Counter-example:

Ryanair is a hugely successful airline business in Europe.

Its advertising and marketing strategy is about low price above all else, and unashamedly so.

Look at their garish and ugly website: http://www.ryanair.com/en Count how many times they use the word 'cheap'.

Read the wikipedia article, which mentions how badly they treat customers, and their rapid growth and financial success: http://en.wikipedia.org/wiki/Ryanair

Sometimes low-cost, sold as low-cost, works well.

Ryanair has taken the low-price aspect to an extreme too. For the flights I care about, it's generally something like £5, but once in a while it's literally £0 plus airport fees.

I have never been treated particularly badly by them. You don't get anything that might be included in a more expensive flight such as checked bags, a meal, assigned seating, etc., but I don't really care about those things anyway, certainly not for 1-3 hour flights within Europe.

Ryanair also mastered price making. Prices vary in a way that is almost scaring from day to day, if you try to get a last minute flight you may end up with a hundreds of euros or half penny depending on their expected load, while traditional companies are way more rigid.

See also WAL-MART. Wal-Mart doesn't purport to do anything better than its competitors really, and I don't know how they could; they all sell the same things, and so price is the only real competition (environment counts too, but it's a tertiary point). Wal-Mart is now one of the biggest companies in the whole wide world.

AIUI Walmart is successful because they mastered logistics.

Which is a key point, and probably the one wensing was originally trying to make. If you can build a business with the intent of doing something like logistics extremely well (which lowers your costs) then you can pass that on to the consumer of your products. They don't give a rats ass about your logistics, but they do care that whatever the blackbox your warehouse does ends up shaving 20 cents off that bag of chips. WalMart still gets about the same percentage of profit, but the overall cost of the product is less.

Lowering your price just to be cheaper than your competitors only cheapens the market and doesn't add anything of value to the product. You will quickly learn why everyone else keeps their margin up higher than yours when you can't expand due to lack of funds, or you have to cut something else out to keep in business.

True, but the result is low prices and that's what they market.

The other big advantage is that they are ubiquitous. Outside of major cities, Walmarts are everywhere.

You should learn more about Wal-Mart. It is, profoundly, a technology company. Wal-Mart was one of the earliest adopters of satellite communications in the 1970s and are leading the RFID revolution today. They have used logistics technology to ramp up to heretofore unknown scale, and use that scale to batter their suppliers down on price.

As uxp describes below, this may be the mechanism Wal-Mart uses to get a price advantage, but it's not why people shop there. People shop at Wal-Mart because it's cheap. I've never known a town to have only a Wal-Mart, there are always some regional or local grocers in the game too, but Wal-Mart wins because Wal-Mart has better prices. It's nice that they use technology to gain the price advantage, but ultimately consumers don't care or know that Wal-Mart uses satellites or RFID extensively; Wal-Mart markets price, not fancy back-end warehousing.

Yes, price is an enabler, that enables you to get started. The key is you don't have to be very good in other respects at first, and yet customers will be delighted, if their other option is nothing (e.g. because of price). Over time, you can improve at what your customers value, and usually you'll find things your particular customers especially value, and that your position serendipitously helps you do better. Improving market/product match over time.

That's marketing, in the sense of targeting need; I agree it might not be the best marketing in the sense of advertising! Yet... it still does depend on the segment you target: for some, low price is what they want to hear.

I like your example of using the money saved from a low cost business model to improve something else. But to compare Zappos with a retail store: there's no shipping cost for a store; overnight is slower than today (or now); and buying-without-trying remains less reliable than in-store purchase. I would guess being cheaper is the highest ranked attribute for most of their customers - if it was the same price as retail (or higher!), how many would still buy?

I think your reasoning fails the real world test. Reasons Zappos' target customers use Zappos: vast selection, easy returns, no hauling your kids to the mall (this is HUGE), excellent customer service. I'd guess they could charge 5-10% above retail and still win.

I haven't actually used Zappos, but if you're saying a website has better customer service than an actual person, maybe I should. Unfortunately they don't ship overseas.

Agreed. The blog post was great. We use tender for our support, and I took a quick look at freshdesk. Having tickets with priority, type, building and group are way overkill for us and one of the reasons we left zendesk. I'd encourage you to carve your niche in the market by having an opinion and sticking to it, not by emulating zendesk's features and slapping a cheaper price tag on it.

I will request you to reserve your judgement till you have played with the Freeshdesk beta. Just give us a few more days before we open for the public.

Consider doing both with two different brands; with an online business, and a decent MVC architecture, it isn't very hard; a slightly different view for each brand, and different processes around advertising and customer support for each one. If your cheaper brand is so cheap your competitors can't beat it, they won't compete with it on price, and it won't start a price war.

That way, you capture the customers who respond to price and the customers who respond to non-price factors, and the market segments could well be different enough to limit cannabilisation of each other.

You can probably learn enough by being lean that parallel universes isn't necessary.

eh, one of my (much smaller) competitors attempted this. They were larger than I was when they attempted it. Now, they're smaller than I am; so much so that they are talking about selling the company to me.

I mean, I'm sure you can do it, but it's difficult enough to maintain one brand, without trying to pretend to be two different companies.

The mental difference between 0 and X is dramatically larger than the difference between X and X+1, no matter what X may be. Focus on the offering and striking a chord with your target market.

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