In 1996, Robert Kiyosaki was preparing his Cashflow game for final production, ready for commercial use, when he encountered a very serious business problem. The question was, how much would someone pay for that product?
The first problem he faced was that the product might look too much like a game for entertainment rather than education. Since the mission of his business is to raise the financial literacy of humanity, the purpose of the game is to teach, rather than amuse. He intended amusement to be just a side-effect of the educational game.
That was not the biggest of his problems.
He formed a focus group to find out how much the market would value Cashflow. The price they suggested ranged from $19.95 to $39.95. Unfortunately, due to the small production runs, the cost price of the game was $46, excluding shipping and development cost! Then he has to add up the fixed costs of doing businesses. To compound his cost problem, a consultant advised him that if he wants to see his game selling at Wal-Mart chains for $39, he will have to sell it to them for as low as $10 just to get it into a store. Other retail stores want at most $20.
In other words, Cashflow was seen as a commodity. There’s no way his business can be profitable if that’s the case. Of all the problems, this one had him stumped. He couldn’t find the solution to this problem until one day he attended a marketing seminar. And a brainwave hit him. He realised that he’s looking at the wrong people to sell the product—the low end.
The low end is where the commodities are. That’s also where the bargain hunters are. If you are in the service business, there’s where you will be spending more time haggling about your fees than providing real value to your customers. If you move up to the middle-end, you will still be competing on price—with the low end.
What happens if you compete on price? When you compete on price, you will spend more time fighting against declining margins than providing quality and value to your customers/clients. If you are in a service-oriented business, this will quickly translate to lower job satisfaction for both you and your staffs.
If you are already competing on price, there are only 2 possibilities:
- You’ve run out of options and ideas and are left with nothing but a commodity.
- Your business has a competitive advantage through efficiency, economies of scale and technology.
In that case, you better find out which category your business belongs to. If you find yourself repeatedly writing a lower price tag, it is most likely to be the first one. The second one is actually quite difficult to implement.
So, how did Robert Kiyosaki solve this problem? You’ll find out tomorrow!