Many entrepreneurs and business leaders believe that offering cheap or low-priced products is the key to increasing sales and business growth. However, this misconception has led many businesses into financial trouble. The truth is that the price you can charge for your product or service is determined by your target market.
It’s important to consider whether it’s worthwhile to focus on markets with low-profit margins, as high turnover is necessary to offset the low prices. It’s also important to recognise that if you are operating in a low-price market and rely on manual labour for production or services, you will end up paying low wages for a lot of effort and earn very little. In essence, you’ll be labelled as exploiting your workers.
Instead of labelling products or services as cheap, it’s better to consider the affordability of the target customers. For example, sachet milk may seem inexpensive, but it’s designed for people who can only afford to buy small quantities at a time. Therefore, simply setting a low price does not guarantee success.
I believe that focusing on low or high-profit margins is more important than setting low prices. I strongly discourage operating with low-profit margins, as it’s difficult to succeed in such markets without significant cost reductions and high turnover. Engaging in low-margin businesses can often feel like philanthropy, but it’s unlikely to be appreciated by customers who simply see you as a businessperson.
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