Maybe you're not too expensive. You just haven't decided what the extra margin is for
Originally written in Chinese. Translated with AI, reviewed by Gary. Read the Chinese original →
Yesterday, chatting with people at NEXEA, I heard a case study I found really interesting.
When we start a business, it's easy to think a certain way.
My tech is better, my product is better, customers love it, so that's my moat.
Especially from the IT days, to mobile, to AI today, this thinking has only become more pronounced.
Many founders' first reaction is:
I need more tech guys. I need more engineers. I need to make the product more complete. I started writing code two years before everyone else.
As long as I keep writing and keep building, over time a moat will form naturally.
But yesterday a friend shared a story from more than ten years ago that made me think of another possibility.
The group buying price war
Around 2010 and 2011, Malaysia was just entering a big group buying boom.
GroupsMore, LivingSocial and a whole bunch of group buying sites, big and small, popped up.
I looked it up later: at the peak, some estimated Malaysia had close to 70 similar sites.
They were all selling more or less the same things.
Restaurant vouchers, spas, beauty, services, all kinds of coupons.
So the competition naturally ended up as a price war.
Site A tells a merchant:
"Others take 40% commission from you. I'll only take 30%."
Site B comes in:
"30% is too expensive. I'll do 20%."
Everyone believed that to grab the market, you had to be cheaper.
Then Groupon arrived and did something strange.
My friend recalls that some of their deals carried very high commissions, even close to 60%.
Not 20%. Not 30%. The opposite: more expensive than everyone else.
And what did they spend the money on?
Hiring salespeople.
Lots of them.
Cold calls, business development, negotiating restaurant by restaurant, knocking on the door of one service merchant after another.
While everyone else was still thinking:
"How do I get cheaper than Groupon?"
Groupon was thinking:
"How do I get more salespeople out tomorrow winning more merchants for me?"
The result was interesting.
In 2011 Groupon acquired GroupsMore, a local Malaysian player. Public reports say GroupsMore had about 8 people and around 20 merchant partners a month; afterwards the team quickly grew to about 120.
Behind price is resource allocation
We often treat pricing as something very simple.
A bit more expensive, a few fewer customers. A bit cheaper, a few more customers.
So when we can't beat a competitor, our first reaction is to cut prices.
But behind price there's something else: resource allocation.
Say others take 20% and you take 50%.
On the surface, you're more than twice as expensive.
But if the extra 30% lets me hire three times the sales team, reach ten times as many merchants every day, build stronger distribution and secure more supply, then that 30% isn't just profit.
It's actually buying growth.
Sometimes the question isn't:
"How do I get cheaper than others?"
It's:
"If I'm more expensive than others, can I turn the extra money into a capability others will struggle to catch?"
Bringing it to AI today
Applied to AI today, I find this thinking even more interesting.
Everyone is building AI products now.
Everyone thinks: I need more engineers, more AI talent, more tokens, more features.
Of course these matter.
But the problem is that technology is moving incredibly fast.
A feature you worked hard on for six months could be wiped out by a single model update a few months later.
So where is the real moat?
Maybe it isn't the code.
Maybe it's your sales force. Maybe your distribution. Maybe your years of relationships with customers. Maybe your data. Maybe the operational know-how built up from doing a thousand, ten thousand transactions every day.
Sometimes your real moat is simply that your unit economics are better than others', so you can afford to spend more to acquire customers, and they can't.
Of course, I'm not saying being expensive is always right.
Groupon later ran into many problems of its own, and Groupon Malaysia was eventually sold to KFit in 2016, which later became Fave.
This isn't a story of "raise your prices and you'll succeed".
What it really reminds me is:
Don't make price cuts your default answer to competition.
When business is bad, we naturally think:
A bit cheaper. A bit less commission. A bit less margin. Win the customers back first.
But another direction is worth considering too:
Could I actually make the margin higher?
And then put the extra money into sales, distribution, service, product and brand, building a stronger growth machine?
Because the real question was never only:
What you charge.
It's:
What every ringgit you earn ends up building.
Sometimes you're not too expensive.
You just haven't figured out yet
what the extra margin is for.