Issue #112

Why You Can’t Compete On Price Forever

In the 1960s, economist William Baumol noticed something odd.

Some industries get much more productive over time (manufacturing, software, logistics). Others, like teaching, healthcare or live music, barely change in productivity at all.

A factory can make twice as many widgets with automation. But a string quartet still takes four people the same 40 minutes to play Mozart.

Even the invention of thrash metal has not changed that fact.

Yet the musicians’ wages rise roughly in line with factory workers’, otherwise they’d all quit and go work in factories.

So, industries that can’t easily scale or automate see their costs rise faster than their output. That’s Baumol’s Cost Disease.

Why It Matters in Sales

If what you sell relies on human skill, judgment, or time, Baumol’s idea explains why you have to be creative to survive.

1. You can’t compete on price forever

The cost of skilled people will always rise faster than any efficiency gains you can make. Trying to compete on price will just erode your margins and your talent base.

2. You must compete on perceived value

When productivity can’t scale, perception must. You sell the outcome, impact, or experience, not the hours or headcount.

To read more about selling using value, click here or the image.

Consultancies appear to be the exception here, they are human skill driven but charge by the day. In fact what they do is create a price for you and then resource the work based on the profit they want to make. (See example below).

3. You can position “human involvement” as a feature, not a flaw

If you cannot fix a bug, then make it a feature. The very reason you can’t scale infinitely, your human expertise, is what can make you rare and valuable.

How to Sell More Using Baumol’s Cost Disease

1. Reframe price pressure

When a client says, “You’re expensive,” explain the economics of quality. This turns a cost objection into a value discussion.

Example:

A logistics tech firm pitching a major retailer (I have used this response many times and it is always received with interest).

The buyer says: “Your implementation fee is double the competition.”

You reply: “Our system isn’t plug-and-pray. We map your entire workflow and build the integrations by hand. That’s why we hit 98% first-month adoption instead of the 60% you’ll see elsewhere. You’re not buying hours; you’re buying certainty.”

Why it works

You shift the frame from cost to risk avoidance. The client now sees “expensive” as “safe.”

2. Justify margin through expertise

Use contrast bias. Show how other providers reduce price by reducing human touch points, and what the buyer loses in doing so.

Example:

A consulting firm bidding on a transformation project.

The buyer says: “Your day rates are higher than the big four.”

You reply: “That’s true. But when you hire us, the people in this meeting are the same people doing the work. The large firms send in partners to sell and juniors to deliver. If you’d like the same faces to stay on your account, that’s what our rate covers.”

Why it works

You expose the hidden trade-off behind cheaper options, less senior time, lower quality, and make your price the proof of value.

3. Use it to build scarcity and urgency

Your availability is finite, and Baumol’s law makes that fact credible. It sounds luxurious, but it’s just honest economics.

Example:

A specialist med-device supplier approached by a hospital network. The buyer says: “Can we get a better deal if we sign later in the year?”

You reply: “We don’t discount for delay. We run limited onboarding slots because every installation needs a senior clinical lead. Once those are booked, we’re into next year. The earlier you confirm, the sooner your clinicians see benefit.”

Here's how to deal with unreasonable negotiation demands, click here.

Why it works:

You turn your resource limitation into scarcity. Instead of begging for the deal, you show you’re selective, and valuable precisely because you can’t scale like a machine.

In Short

Baumol’s Cost Disease teaches you this, when efficiency can’t rise, value perception must.

So if you sell expertise, creativity, or human trust, don’t apologise for cost.

Make it clear your product lives in a world where skill doesn’t scale and where excellence will always cost more than average.

If you want to get your team trained up in the basics of enterprise sales, get my course.

You'll find loads of 5 to 10 minute videos that you can use to hammer home the foundations of enterprise sales.

Integrate them into your team meetings and coach your team to excellence, step by step.

"I showed them the video about the nine elements of a sale and I couldn't shut them up for an hour..." Simon, VP Sales. He uses the course to focus his team on a different skill every two weeks.

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