Fighting the China Stratergy

In business there is only one fundamental question - How to make money? But there are two fundamental answers to it.

First would be take a rupee from a lac customers and you have one lac. This is the China Strategy. The Americans will swear that it never works and its just pure fluke that Chinese have been able to sustain if for this long.

Other is just the opposite. Make Rs. 100 from 1000 customers and you are there. Which one should you or your business choose? That’s the question all the small businesses of the world are trying to answer.

If I was asked to put my money on one of the two I would choose the latter. It is the correct way with better returns in the long run. And it applies to any business, ranging small shop, or a wada pao vendor, to the largest of the large corporations.

Reason. Simple math. It generates more revenue per sale. In a little more detail - how much ever hard you work or how much ever efficient a system you create ultimately there will be a fixed cost per sale. Cost includes time spent on the sale. This will bottleneck the revenue after a while. Initially the low price model will look very attractive as it generates instant sales and the turnover shoots but sustainability is a serious doubt.

More margins per sale don’t necessarily mean that it should be some kind of an up-market product. It could be a regular middle class product selling probably half the number of your low priced competitor but delivering quality to the customer and higher revenues for the business.

Few of the most regular successful products today will tell you the same story. Be it Microsoft Windows or an iPod or even a Pizza Hut Pizza or a regular Barista coffee. They have huge margins, targets the huge customer base of upper middle class, and are way ahead of their half price competitors.

An excellent article here about fighting the China Strategy.