Most Valuable Players

Slashing prices to keep up with the big chains can spell disaster for the average entrepreneur. It's better to stick with what your business does best: Offering customers value-added services.

John Reid should be worried. The owner of SPC Office Products , a chain of office supply stores, Reid has watched as self-service giants like Staples and Office Depot have come to dominate his industry. The closest self-service behemoth is only 45 miles from one of his SPC locations in western Oklahoma-a distance that, Reid says, "in our area is like nothing, since people drive that far for dinner." But Reid, 47, is not concerned.

Over the past decade, SPC has expanded from one to six stores, kept sales up-revenues were $7.2 million last year-and expanded its roster of large clients. How has Reid competed against the two office behemoths, which have more than 2,000 stores combined and enormous catalog and Web-based supply systems? Reid has convinced residents of western Oklahoma that, even if Staples or Office Depot offer products for slightly less, SPC can provide crucial value-added services-services that, in Reid's view, "are just enough to convince people they should come to us rather than drive 45 miles away."

Searching for New Value
Reid's situation is hardly unique. Over the past 10 years, consumers have been presented with many new avenues for buying products and services. Industries from office supplies to health food to books have become dominated by huge chains-chains that can offer lower prices on high-value products in predictable retailing environments, and that can blanket areas with mass-market advertising. Target is a prime example: Once known as a low-end chain, Target now sells designer clothing on the cheap and has poached thousands of customers from small fashion shops. Meanwhile, the Internet has made it easier for consumers to seek high-value products online and comparison shop among many stores.

Entrepreneurs have scrambled to survive. The number of independent bookstores has fallen by nearly half over the past 10 years, says the American Booksellers Association, a trend repeated in many other industries. In western Oklahoma, Reid says, nearly every other local chain of office supply stores has gone out of business.

According to business and marketing strategist Arnold Sanow, many entrepreneurs have tried to compete with the larger chains on price-almost surely a losing move. "Small businesses cannot win price wars since they do not have the bulk purchasing and margins," Sanow says. "They have to use a different tack."

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This article was originally published in the June 2003 print edition of Entrepreneur with the headline: Most Valuable Players.

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