Thread by @heymaxkoh

Amazon, Costco, Southwest.

These 3 great companies have 1 thing in common:

A low price strategy.

Here's 5 frameworks to help you invest in "low pricing business models":

Distilled from one of the world's top pricing strategists

1. Low price from Day 1

For this to work, low pricing must be built into their business model.

These companies value things like:

- Frugality
- Process efficiency
- Strong procurement from suppliers

It's part of their DNA since the start.

1b. Low pricing also starts from the leadership and culture.

From the type of car the CEO drives...

To the furniture in the office

(think of Jeff Bezos making tables out of wooden doors in the early days of AMZN)...

It sends a message to the employees:

We keep costs low!

2. High growth focus

Many low pricing companies have little profits.

So they don't survive long.

But the exceptional ones are the opposite.

Low pricing must co-exist with huge growth.

Why?

2b. Because only with growth, are they able to create scale.

And it's only with scale, that the business can enjoy cost advantages like:

- Lower unit cost

- Better payment terms

- Power over suppliers

Only with these, can the business lower its costs.

3. Low pricing does not equal low quality

These great companies ensure they deliver quality products to customers.

Consistently.

They do NOT let low prices give an excuse to compromise on quality.

Otherwise, sales volume will not be sustainable in the long run.

4. Deep understanding of what the customer needs and does NOT need

They know what to leave out.

Often, these companies produce products that are stripped-down versions of their competitors.

This allows them to lower unit costs...

While still delivering what the customer wants

5. Their messaging focuses on low prices everyday

They do not wage price wars suddenly.

Or introduce discounts and promotions to push sales up.

Instead, they are mindful to associate everyday low prices to their brand.

Customers expect it.

5b. They also don't send mixed signals.

They do not pretend to be premium or aspirational.

Their ads focus on low price.

This allows them to dominate that category in the audience's mind.

And only with a strong brand, comes huge sales volume.

That's it.

The above pricing frameworks are taken from Hermann Simon.

He's known as one of the worlds top strategists and thinkers on pricing.

Also check out his book:

If you found this useful, then follow me here at @heymaxkoh

I share my journey of how I attained financial freedom before age 30, while still working 9-5.

I did it by investing in great businesses.

You'll enjoy my writings on investing frameworks and mental models.

Recap of the 5 "low pricing" frameworks:

1. Low price from Day 1

2. High growth focus

3. Low pricing does not equal low quality

4. Know what to leave out

5. Messaging focuses on low prices everyday