It occurred to me that not everyone is from the South and as such may not have any idea about the Watermelon truck theory so for those guys here you go :
Two geniuses from Texas got bad
sales advice when they decided that they were going to go to Mexico and load up their pickup truck with watermelons for a buck a piece and come back across the border and drive to Dallas where they were going to sell those watermelons for $10 a dozen.
Before they got halfway to Dallas, they sold out of their watermelons. As they were sitting alongside the road counting their money, it occurred to them that they had collected less money from the sale of $10 a dozen watermelons than they had actually paid in Mexico at a dollar apiece.
No problem for these two geniuses who came to the resounding conclusion that their problem was they just needed a bigger truck so they could sell more watermelons.
Now, before you laugh, that is how a lot of people in business think.
They think they can make up for lack of margin by increasing volume. Now the only one that really believes that are the professors to teach economy 101 in universities.
BTW I can't say anything about Texas as I never been there but around here Watermelons fetch about ten bucks a piece.
You cannot make up for low margin by selling more stuff.
A lot of people don’t believe this and try it. They think if they cut prices,” if we cut prices we’re going to make up for it in margin”. It just never works out that people are able to sell more at a lower margin to make up for the differential of cutting their prices and cutting their margins.
Now you know one of the main reasons 16 out of 17 businesses that are started each year fail.
Plainly said, the people who started them are idiots and deserve to fail.
The difficulty of accepting this as fact is the issue that next week there is another idiot that thinks he can do the same thing. And he jumps into your business and he does the same thing until he runs out of money.
The following week there is another and then another….
You are always going to have idiots competing against you who are going to undercut price and sell stuff for less than what it costs them to actually provide that service.
You are not going to eliminate that reality.
If you are going to stay in business and be competitive, you’re going to have to learn how to compete at a higher price point and ultimately become a more skilled sales professional so that you can compete against those lowball competitors that are not going to be there for the long haul.
You may have been conditioned that people are buying on price because everybody is running around undercutting it only to realize six months, a year, two years down the road that those people are no longer in business.
This strategy didn’t work for Kmart. It didn’t work for Woolworths, and it will ultimately not work for Wal-Mart and it will not work for you. Woolworths went out of business, Kmart is pretty much out of business and Wal-Mart, if they don’t change the way they are going about doing things and appeal to the more affluent at a higher price point, they will go out of business by trying to compete on low price.
The truth is that ultimately, you and your company will go out of business over the long haul if you try to compete strictly on price and become the low-ball or the low-price provider in your particular market.
It just does not work.
