Sunday, February 8, 2009

De Ja Vu 1982

A recent trip to the local Office Max took me back in time to the recession of the early '80s. I went there shopping for a thermal laminator, some labels and rubber bands. I expected the prices would be a bit higher, but what I found was ridiculous. The labels I had been paying just over $20 a pack for just 6 months ago were $46. The thermal laminator I had bought 18 months ago for under $37 was now $119. Even the rubber bands had gone from $4 and some change to $6.95. I had a $10 off coupon so I went ahead and got the labels and the rubber bands. Of course when I got home, I discovered I could get the same labels online from another source for $10.95 and the laminater for $40.

It took me back because I remember the recession of the '80s and how companies attempted to make up for lost revenue by raising prices. It didn't work then and it wont work now. I had planned on spending about $75 or so on this particular trip. Instead I spent about $40 and left with less than I was shopping for. They made a bigger margin on what I did buy, but I wont bother shopping there again. I know I can still find value elsewhere. It's just going to take a little more research.

That's what happened in the '80s. While most companies were offering less for more, some found ways to cut costs and keep prices low. The latter survived and thrived. The former did not. You may be tempted to follow the herd and try to slip price increases by your own customers. It may be unavoidable in some cases, but remember, your customers are also looking for ways to make ends meet. They are looking for value and they will be looking harder now than ever before. A 10% price increase will not result in more revenue if it causes sales to drop by 20% or more.

I was working at Dominos pizza when a franshisee came up with the idea for the "Mega Deal". The offer was for a large, unlimited topping pizza for $7.99. Corporate hated the idea. They just knew that lowering the average ticket price was a recipe for disaster. It couldn't possibly work. Not only did it work, other franchisees copied the model and before long it went nationwide. Profits in most areas that ran the promotion tripled.

When credit was easy people weren't as value conscious as they are right now. With internet, cable and cell phones, it's easier now than ever for word of real values to get around by word of mouth. Take care of your customers. Bite the bullet. Take the lower margin for a while. Look for value and pass it on to your customers. They will reward you for it in the long run.

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