Perceived Value - Or: Why Consumers Cannot Continue to Rape and Pillage Businesses for Much Longer
Let me begin this post in a way that I thought would never happen. In a way that is so utterly shocking to me that I...I...I just don't know how to handle it. I was hanging out with some new friends last night, and was told by one that I look like the very object of my admonition, Robert Pattinson. Those who read my last post will be familiar with how I feel about Mr. Pattinson. I really have nothing against the guy personally, it's just that he's sort of the harbinger of the end of times. And that's not cool because I have a ton of stuff that I need to do before the Pattocalypse.
Actually, his hair kind of bothers me.But really, I just needed to start things off by getting that out of the way. Hey, if I'm unwittingly part of the Pattocalypse, then that's the way it's gotta be. But you deserve to know.
Anyway, on to the subject at hand. Perceived Value in a deflated economy. Now, I'm not an economist, but I am insanely wealthy (*ahem*), which automatically makes me an expert on all things economic. Or ecumenical? I'm not sure. But either way I'm an expert.
I won't lie to you, the economy is tough, so tough that we have to constantly refer to our current place in history as "these tough economic times," a phrase which I believe should never again be uttered. So here we are in TTET (so I don't have to actually say it); everyone's wallet is a little thinner, they're having to tighten the proverbial belts. From the top of the food chain to the bottom of the gutter, everyone, everywhere feels the pinch. Consumers in general are placing exponentially more importance on the perceived value of products and services, making sure they get their money's worth. Take Microsoft's recent ad campaign about how affordable a PC is and look at how Microsoft takes not-so-subtle jabs at their competitor, Apple and Apple's supposedly astronomically higher prices.
Meanwhile, we have Apple responding (as shown above) with their value statment. "Sure, our prices may be a little higher, but look at all this added value you get in terms of fewer head-aches, crashes, viruses and so on.
Another example would be Ritz-Carlton's new "One" campaign. The luxury hotel-chain has smartly realized that families may take fewer vacations this year, even if they could afford more. Coming up with a new branding campaign built around the fact that if a family is going to take "One" vacation this year, it should be the perfect one. So they manage to keep that which made their business luxurious before, the impeccable service and facilities, but repackage it into something that has the same perceived value at a lower cost. Stay for five nights and pay for three? I'm not sure but even at $499 a night that might be a lucrative enough offer for me. That would certainly make the difference between me staying at a lesser hotel where my nightly rate for five nights might be lower than $499, but the total cost comes out to be the same. Smart, Ritz. Very smart.
But let's look at this from the other side. From the side of these businesses that are taking the initiative to show that they can still provide the same (if not better) value than the competition, but do it at lower prices.
What is the number one way a business can immediately cut costs? Payroll. Who do you absolutely not need and how quickly can you get rid of them? Between the associated healthcare costs (assuming that the business in question pays for healthcare) and the immediate benefit of relieving some of the bloat on the company's checkbook, layoffs are the quickest way a company can restructure itself and its assets without a copious loss of stability. Can one person do the job that two used to do? Frankly, yes. I cannot think of a time in TTET that a week or even a day has gone by that more layoffs from another company are making headlines. Just today I read that California's unemployment rate has reached a record-breaking 11.5%.
What the consumer may not consciously be aware of is that they are asking businesses to provide better service and value than they did before, and do it with less labor force. What we're exploring here is the potential that this behavior has to cause our current economic model to collapse, like an inverse version of inflation wherein the value of the dollar stays the same, but the cost of services has to become lower. Now, no sympathy to the big corporations out there, because ultimately it is their decision to cut labor, not the consumer's; however, consumers, especially those with the means to still spend, are caught in a tug-of-war with corporations over just where the line is drawn between the juxtaposition of value and cost.
There is a very fine-line between what you can blog about and what you cannot, in terms of those of us who are otherwise employed outside the blogosphere. So I will tread lightly here. The finest example I can come up with to make my point is in the problem-resolution and customer satisfaction area of my business. Customers who experience defects in our products and services are no longer satisfied with a sincere apology and a simple resolution. Customers are keenly aware that any and every business right now is so desperate to hold onto their market share (much less grow their market share) that even the possibility of losing a single customer can be viewed as near-catastrophic to that particular business. This is especially true if your business is in an over-saturated market wherein consumers have a variety of options other than your business. If you lose one, you could lose them all.
In response to this awareness from consumers, who are already receiving better deals across the board (this is not just referring to my particular business, but a more aggregate market-related observation), companies are having to get more creative with their solutions. I have a friend who bought three cans of shaving cream from Gilette and found out when he got home that each one was faulty and there was no air pressure inside to push the product out. After attempting to return them to the store he purchased them at and being told by a distinctly un-savvy customer care representative that the store had a no-return policy on toiletry items, he decided to write a letter to both the store's corporate headquarters and that of Gilette, to lament over the fact that all three lacked pressure. He heard nothing for two weeks. No phone calls, no letters, no emails. Then, the third week, he received a $25 gift card and an apology letter from the drugstore chain and a package from Gilette, containing 3 brand-spankin' new cans of shaving cream.
Is this response the new standard? By all means, no. If you buy a BMW and don't like it, I don't think they'll just let you swap it out with another model without still taking you to the cleaners, but then again the automotive industry is worth a whole different post. I tell you this story to illustrate just how far these major corporations, who, a year ago, would have let one customer go on such a complaint, are placing such an enormous focus on engaging their customers and building brand loyalty, even if this means spending a little extra cash at the moment to do it.
If you are a business, and you're already seeing narrower profit margins from having to lower your prices while still paying your (possibly smaller) labor force the same or more than you did the previous year, you can scarcely afford to put out more capital, whether in terms of products, services or cash. But you have to keep your customers and in fact, gain more customers. That's simple math. If you are charging less, you need more customers in order to make the same amount of money you would have made before. What this means is you really can't afford to let any customer go, even if it costs you a bit in the short-run. You're betting that you'll make it back up in the long run. The whole thing is very similar to President Obama's stimulus plan, a short term burst of spending that may put companies (or in his case, the country) deeper in the red for the near future, but will hopefully cause a long-term stabilization.
Can we ask consumers in a capitalist economy to understand the balance between the perceived value of a product or service and the associated cost to provide it? No. Lower demand will always dictate lower supply, ergo forcing businesses to find cheaper ways to provide this supply and still make more money. Concordantly, an overabundance of supply will always dictate lower demand, which will cause the same end result - lowering prices to get rid of supply overages and then maintaining lower supply levels while still seeking ways to make more money.
It is my worry that if consumers and businesses do not quickly come to a consensus on where the bottom line really is, we'll see businesses unable to sustain the operations necessary to do business because consumer demand pushes prices below the margin at which point the companies can still make a profit.
So what am I asking you to do? Go with the flow. Still push for value, because that's what consumers will do. But don't abuse the system. Don't be the person that purposefully tries to get something for free off of a company and then brags about to their friends, causing more people to do the same thing. Be a part of the stimulus by putting your money into the economy, not a part of the deterrent by expecting too much for too little.
There, I've utterly confused myself. I'm too exhausted from writing this to edit it. I'm just going to hit post and revisit this one later to edit it to the New York Times' editorial standards. I hope you've enjoyed my rant on Consumer Rape, that you will be a good little consumer and say "Yes Sir" and buy whatever crap some company is peddling and that you'll keep coming back for more over here at Your Headlights Are Out.
Don't think too hard, you might poo your pants.
