Escaping the Tyranny of Price Competition

For American manufacturers, competing on price with companies that are exporting goods from a low-wage-paying country is nearly fruitless. While you expend effort and know-how on shaving a percentage point or two off your cost of goods sold, products and parts are coming in from offshore at an average of 17 percent cheaper.

You’ve probably been considering some of these methods of responding to this squeeze:

• Moving up the value chain, so you can utilize skills your people have that aren't available elsewhere
• Taking a hand in the design of the goods you’re making, so that you’re adding expert service to your balance sheet while finding design solutions that maximize your resources
• Boosting operational efficiencies, so you can extract more profit from your current resources

But there’s another option that you may not have considered.

Focusing on product, not price

Created by mid-20th century master marketer Rosser Reeves, the Unique Selling Proposition, or USP, is the key way to escape from pure price competition. By developing a unique benefit for your product, you move from the status of commodity provider to the role of sole manufacturer of a particular good. In effect, you become a monopoly in the context of this one benefit.

A prime example is M&M’s. These hard-shell candies offer a unique benefit to the American market, unmessy chocolate, which was particularly attractive in the age before widespread air conditioning. Mars Inc. made this benefit explicit with its famous promise that M&M’s would “melt in your mouth, not in your hands.” This USP is part of the reason M&M’s has become a dominant player since its introduction in the United States in 1941.

Another classic case is Domino’s Pizza, which has focused its operational procedures on being able to fulfill the promise of pizza delivered to your home in 30 minutes or less. This strategy has not only made Domino’s a very successful company, it’s also an excellent example of an ideal characteristic of the USP: the high barrier to entry. Because a pizza chain must be engineered from the ground up to fulfill this promise, competitors cannot easily match this service. So even though the half-hour promise is known to be a strong customer motivator, Domino’s retains its functional monopoly on this benefit.

How to make the USP work for you

Since the USP is a broadly applicable concept, it can work for your company, too. You have two paths to choose from:

1. Create a new market for a product you already have. It’s not always obvious how your product might be used. For example, in the early 1970s, a research scientist at 3M who was working on developing a powerful new adhesive instead created a weak adhesive that hardly attached at all. Considered worthless, it was shelved. Several years later another 3M scientist who wanted a way to keep bookmarks from falling out of his church hymnal, applied some of this weak adhesive to slips of paper and found it suited his needs perfectly. We now know these lightly tacky paper slips as Post-it notes, and their nationwide launch in 1980 created an entirely new category of products.

Similarly, you may have a product that could offer something unique to a new market. Perhaps an item you’re making now as part of larger assembly could be sold to consumers as a stand-alone product. Or an item that you’ve been making for a long time could find new applications in an industry making use of new technologies.

2. Use your existing skills and technology to make something new. To see how this might work, take a look at the approach the toothbrush manufacturer Dr. Fresh (whose real name is Puneet Nanda) took to developing a new product. His product line already included many toothbrushes. So to develop something new, he examined his niche and discovered another problem he could solve: It’s hard to get kids to brush their teeth for as long as they should. With this in mind, Dr. Fresh designed a toothbrush featuring a light that sparkles for 60 seconds, the ideal amount of time spent brushing a row of teeth. The technologies and market were already familiar, so it was relatively easy to bring this new item to market. Firefly toothbrushes have now spun off many other items and developed into an entire line of products.

In a similar fashion, there may be a way for your company to modify one of your products and create something new that has an “ownable” USP. As society changes, new needs are coming into existence all the time, with many of them being variations on needs that already exist.

Three USPs you already have

If your competitors are primarily companies in low-wage-paying countries, you already have three possible Unique Selling Propositions, simply because you are an American manufacturer:

1. Quality control: American-style quality control is created by a combination of internal company standards and U.S. government regulations. It won’t be duplicated in low-wage-paying countries until economies worldwide have reached a common standard and global markets have matured. And by that time, of course, the category we now call “low-wage-paying countries” will no longer exist.

2. Speed of delivery: Shipping by air is prohibitively expensive in many cases, so products from overseas must often travel by ship. This can easily add two months onto delivery times, which is considered glacially slow in the context of today’s rapidly accelerating pace of business. As an American manufacturer, you can have items anywhere in the United States in a week. This is an advantage you have over offshore companies that won’t be changing in the near future, if ever.

3. Sweatshop-free: The exploitative manufacturing and assembly operations known as “sweatshops” do not exist in this country because we don’t have the tremendous inequities in wealth distribution that make them possible. As consumers have become more aware of sweatshops and less willing to help perpetuate them, it has become more and more important that “Made in America” means, by definition, “sweatshop-free.” This is a USP that will be available to you for years to come.

These ideas are just a jumping-off place. The key takeaway is this: You don’t have to be a slave to price. Build a better mousetrap and let the purchase orders of the world beat a path to your door.