You walk into a store and find two products that do roughly the same thing. One costs 80 riyals; the other, 120 riyals.

Despite the price difference, some customers choose the more expensive product.

If the lowest price were the only way to win, the second product should have disappeared from the market. But it may stick around—and even do better.

So why don’t all companies try to be the cheapest?

The answer starts with a fundamental strategic decision: how does a company want to compete?

One of the concepts covered in Dr. @Mahran Hafizullah’s Strategic Management course at Al Yamamah University is business-level strategy: how a company chooses to compete within a particular business, including through cost leadership, differentiation, or focus.

When price is part of the strategy

The first option is cost leadership: a company’s ability to compete by keeping its costs lower.

But lower costs don’t simply mean putting a cheaper price tag on a product. To compete this way over time, a company needs a business model that allows it to keep costs below those of its rivals.

This may come from the scale of its operations, its production methods, resource management, or other factors that make it less costly to offer the product.

Another company, meanwhile, may choose not to compete on price at all.

Instead, it may pursue differentiation: offering value or features that make its product or service stand out in the customer’s eyes.

That difference may lie in quality, design, service, the customer experience, or other factors that give buyers a reason to choose the company even when it isn’t the cheapest.

This classification is associated with Michael E. Porter’s work on competitive strategy. Porter presented cost leadership, differentiation, and focus as generic strategies companies can use to build a competitive position.

This helps explain why products at different price points can both find buyers in the same market: customers don’t buy price alone. They weigh the price against the value they believe they’ll receive.

Not every customer is the target customer

A third option is focus: choosing a specific market segment rather than trying to serve everyone in the same way. As discussed in Strategic Management, this focus can be paired with either low cost or differentiation.

A company might shape its offering around a specific customer segment and develop a deeper understanding of its needs, rather than trying to create a product that suits the entire market.

This makes the strategic question more precise than simply asking, “How do we sell more?”

It’s also about who we want to serve and why we want those customers to choose us over our competitors.

That’s why not all companies try to be the cheapest: price isn’t the only way to compete. One company may build its position on low costs, another on differentiation, and a third on serving a specific part of the market.

Ultimately, the hardest question a company faces may not be: How much should we charge?

It may be the question that comes before it:

What reason do we want customers to have for choosing us in the first place?

Theoretical reference:

Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, 1980.

Official link:

https://www.simonandschuster.com/books/Competitive-Strategy/Michael-E-Porter/9780684841489