Being “Cheapest” is Better than “Best”: Why Positioning & Differentiation Matters
Updated: Oct 28, 2022
A common bit of advice in business is that trying to be the cheapest is a bad idea. And that it’s better to be the best.
We even have a “Best of the Best” business awards each year in our city where businesses from dozens of categories are deemed to the “best” according to online votes.
“Don’t be the cheapest. Be the best.”
But here’s why I disagree.
What Does “Best” Mean?
Do you like pizza?
I have a few favourite pizza places in town.
One (let’s call it X) I love for delicious, quality pizzas with unique, non-traditional flavours.
Another (Y) I love for tasty, authentic, Italian-inspired pizza.
Another one (Z) is really cheap and super fast, which I appreciate sometimes.
And then there’s Pizza Hut, because sometimes you just want that stuffed crust.
So… which one’s the best?
You already know where I’m going with this, so you might be skimming to the next headline by now. But here’s the punchline if you want it spelled out.
You can’t just pick a “best.” Or, at least, not a “best” for all situations.
When I’m hungry now, Z is the best.
When I want traditional, Y is the best.
So we need to define the criteria for “best” to be able to decide which one is best.
Pick a Criteria to Win
The thing about pizza places X, Y, Z, and Pizza Hut is that they’re not trying to beat each other on criteria they’re not good at.
Pizza X isn’t even trying to be authentic, Italian pizza, or cheap or fast.
And pizza Z isn’t trying to be high quality.
These places are all successful (and all on my list of favourites) because they know what criteria they want to win.
There are dozens of other pizza places in town, and I don’t really know what they try to be good at. There’s no focus. And, because of that, no chance of being “best” in any criteria.
This is really a discussion on differentiation.
When you don’t try to define yourself in a way that’s different from others, then you don’t stand much chance of being on anyone’s favourites list.
But when you know what you’re good at, and dial in on that, you can conquer a corner of the market.
Here’s some examples of criteria a business can win:
And, usually, it’s a combination of a few. Pizza Z isn’t the cheapest, flat-out. I can get frozen pizza for less. But it’s the cheapest that’s also fast, convenient, and in a good location.
This is positioning and differentiation. Find a corner of the market and own it. Ignore the other people trying to be “best” in different ways.
Cheapest is Better than Best
So why is cheapest better than best?
Because at least it picks a criteria to win.
Cheapest means you know what you’re trying to be best at. There’s intentional differentiation.
Just vaguely trying to be “best” lacks a target. There’s no criteria to focus on.
But is Cheapest a Good Positioning Strategy?
Probably not, for most people.
It is, at least, a specific target. And that’s better than no target at all. But it’s only sustainable if it’s done right.
Here’s how not to be the cheapest: by being willing to make less margin than your competitors.
When people say not to be the cheapest, it’s usually because they’re assuming the approach is by cutting margins. Because just slashing profits isn’t a sustainable way to win.
If the new price is viable, competitors will match it and your advantage is gone.
If it’s not viable, you go out of business.
But there are ways to be the cheapest, sustainably.
If you can find a way to cut costs in a way that competitors can’t easily replicate, you can win at the pricing game because the price can go down with your margins staying intact.
You could reduce those costs by optimizing for speed, finding volume efficiencies, getting exclusive deals with suppliers, innovating the supply chain, using automation, and more.
For instance, we have a client that is able to be cheaper than the other pet food stores in town. And this isn’t achieved by just taking a hit on the margins.
They have developed a model of delivering pet food to your door, which means that you need to order it ahead of time, which means they can have just-in-time inventory arriving for each week’s deliveries.
Because of this, their store has a much smaller footprint than competitors’, they carry less inventory, they have less staff, and they have less waste. So they can be the cheapest without it hurting their margin, and their competitors can’t easily replicate it.
So it can be done. And it is a valid positioning strategy. But not by just slashing margins.
In Which Situations Are You Best?
The real question is to figure out in which instances your business can be the best.
No business is just “best,” straight-up. But there is an enormous amount of value in determining when you are the best choice, in which situations, and to whom.
When you understand that your business is ideal to certain types of people in certain moments under certain criteria, then you can focus on dominating that market segment. You know who to market yourself to, when, where, and with what messaging.
Business Positioning Canvas
If this is clarity you’re seeking for your business, send us a message and ask about our positioning canvas. We can workshop it with you to narrow in on a market segment perfect for you, that’s full of customers looking for exactly what you offer.