tl;dr: This article discusses the pitfalls of using low pricing as the primary strategy for a new cross-border money transfer business. It emphasizes the importance of creating a unique value proposition beyond just low prices, considering long-term sustainability and profitability.
In the dynamic world of cross-border money transfer, the lure of undercutting competitors with lower prices can seem like a straightforward path to success. This strategy, however, often overlooks the complexity and sustainability of such a business model. Over the past 15 years, many who have relied solely on this tactic have not succeeded. The crux of the issue lies in understanding the fleeting nature of customer loyalty that is price-driven. While a lower price might initially attract customers, their continued patronage is not guaranteed, especially if another provider offers even lower rates.
The fundamental question here is the fickleness of customer loyalty. If a business gains clients solely through lower prices, these customers are likely to switch again for a cheaper option. This creates an unstable market entry strategy, where the business is constantly at risk. Instead, the focus should be on offering a well-rounded service package that stands out in the market, not just for being cheaper.
Another critical aspect to consider is the financial viability of this low-price model. Substantial price cuts lead to a direct decrease in revenue. Without a robust financial plan and a clear understanding of how to maintain profitability at these lower price points, the business risks its very survival. For instance, halving the cost of a service from $10 to $5 without a corresponding increase in volume or efficiency is unsustainable.
Larger competitors can afford lower prices due to their high transaction volumes, which allow them to negotiate better rates with banks and payment processors. A new entrant in the market won’t have this leverage and, therefore, will struggle to be profitable at a reduced price point. This highlights the importance of not solely focusing on price but on building a value proposition that includes, but is not limited to, competitive pricing.
In conclusion, while price is a significant factor, it should not be the sole focus when entering the cross-border money transfer market. A successful business model should encompass a range of attractive services and features, ensuring long-term sustainability and profitability rather than a short-lived advantage based on low pricing.
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This page was last updated on November 19, 2023.
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