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Exhibit 14.8 shows the competitive map for The History Shoppe. The two attributes upon which it
evaluates competitors are atmosphere (is this a place that people will linger?) and focus (broad topic
focus or specialized focus). As you can see from Exhibit 14.8, The History Shoppe (THS) plans to
have a high level of history specialization and atmosphere, placing it in the upper right quadrant. The
competitor map identifies how THS plans on distinguishing itself from the competition. THS believes
that history specialization and atmosphere will attract history buffs and entice them to return time and
again.
This section should also address how you will service the customer. What type of technical support
will you provide? Will you offer warranties? What kind of product upgrades will be available and
when? It is important to detail all these efforts, as they must all be accounted for in the pricing of the
product. Many times, entrepreneurs underestimate the costs of these services, which leads to a drain
on cash and ultimately to bankruptcy.
Pricing Strategy
Determining how to price your product is always difficult. The two primary approaches can be defined
as a “cost-plus” approach and as a “market demand” approach. I advise entrepreneurs to avoid costplus
pricing for a number of reasons. First, it is difficult to accurately determine your actual cost,
especially if this is a new venture with a limited history. New ventures consistently underestimate the
true cost of developing their products. For example, how much did it really cost to write that software?
The cost would include salaries and burden, computer and other assets, overhead contribution, and so
on. Since most entrepreneurs underestimate these costs, there is a tendency to underprice the product.
Often, I hear entrepreneurs claim that they are offering a low price so that they can penetrate and gain
market share rapidly. The problems with a low price are that it may be difficult to raise the price later;
it can send a signal of lower quality; demand at that price may overwhelm your ability to produce the
product in sufficient volume; and it may unnecessarily strain cash flow.
Therefore, the better method is to canvass the market and determine an appropriate price based on
what the competition is currently offering and how your product is positioned. If you are offering a
low-cost value product, price below market rates. Price above market rates if your product is of better
quality and possesses many features (the more common case).
Distribution Strategy