I recently read The First Tycoon by TJ Stiles. It’s about the life of Cornelius Vanderbilt, one of the most successful entrepreneurs in history.
Something Vanderbilt believed in when it came to business was the power of efficiency and cutting prices.
Vanderbilt was generally a long-term thinker. And he knew that in the long run his businesses would win if they had the best prices. He knew he would win because he knew his customers would win.
Consumers always win with lower prices.
Obviously the value you get for a price needs to be there. But if the value is equal or even close to equal, people will generally prefer the lower price.
The weird thing is that back in Vanderbilt’s time he was often criticized for lowering prices. Newspapers would publish scathing reports about his fierce competitiveness and price slashing. The reporters would defend the government enforced monopolies and the benefits of higher prices. The author of the book about Vanderbilt even noted how this seems absurd today.
But apparently back in the mid 1800s, it was normal.
Throughout his career, Vanderbilt looked to lower prices. His big industry was steamboats. Actually, it was sailing to start. To compete, he would look for efficiencies in sailing and would cut his prices. Then he did it with steam. When people wanted to get from the Eastern shore to the Western shore, Vanderbilt first helped with the Panama crossing and then a crossing in Nicaragua. And he was cutting prices throughout. And he did the same with the railroad.
Heck, he even put a rival out of business in the Atlantic crossing when the rival had government subsidies.
Another Example of Lower Prices
In the 1980s and 1990s, Walmart took over much of the United States. They would often go into small towns. Many people were sore about the development.
The saying was and still is that many local companies went out of business because they couldn’t compete with Walmart. That is and was true. But it’s not a bad thing for the consumer. Walmart always brought lower prices for consumers in those small towns.
Some will say that Walmart ruined small town America. But perhaps they’ve helped to save it by offering lower prices for those that were starting to find themselves unable to pay the rates at the small, local businesses.
In fact, Sam Walton often remarked that he admired the small businesses that adapted. Walmart would bring in people from many miles. And smart local businesses would setup shop right next door and sell the things that Walmart wasn’t selling.
A Recent Example of Lower Prices
Something that is gaining attention again is the influx of dollar stores in small towns. Even smaller towns than those that Walmart went into a few decades ago.
A popular narrative, once again, is that the dollar stores are bad for these towns. They’re putting local shops out of businesses that can’t compete with the low prices.
But it’s the same story as with Vanderbilt and Walmart. And with countless other industries over the years.
Dollar stores are simply offering the products customers need and want at the lowest prices possible. The dollar stores have figured out incredible efficiencies and the consumers are benefitting.
Some seem to believe that the dollar stores are causing struggle in rural areas. I think the struggle has been emerging and the dollar stores are there as a result. They’re helping people that need help.
If competitors are looking to win they’ll have to sell the things that the dollar stores can’t sell such as fresh produce and more.
I’m a believer that lower prices are always good. Everything else being equal, why would anyone pay more for something if they have options?
Yet every so often some will try to convince us that businesses that lower prices are the bad guys. They’re hurting not just the competition, but their customers.
I’m not buying it. There is obviously demand for lower prices. Any business that can figure out how to do it is doing something good.