Jun
30

How NOT to Respond To a Slowing Economy

By

My wife and I went out for Chinese food today for lunch.  We went to our favorite place, just around the corner.  Usually we order the lunch special, and sometimes we order drinks along with the standard tap water.

But today was different.  When I had finished my drink, I was offered a refill as always.  I accepted, and then was told that there would be an extra charge.

This is new, and the new policy is because of “rising prices.”

And I understand.  When prices rise, the costs get passed on to the end consumer.  But there’s a right way and a wrong way to do it.

The right way would be to increase the price of the lunch special, or even the drink itself.  This is a completely understandable response to rising food prices.

The wrong way is to change a long-standing policy of “free refills with your soft drinks” and start charging for something that used to be included in the price.  (What next – an extra charge for the fortune cookie?  A separate bill for the rice?)  As a customer I don’t mind paying for the meal or for the drink, but I left today feeling “nickeled-and-dimed” instead of satisfied — and it really has little to do with the final price and everything to do with how we got there.

The refill would have cost them about 10 cents.  The result of their new policy is I will not be ordering drinks when I eat there, and I will probably eat there less often.  $1.95 for a soft drink is pretty steep – but tolerable if you can at least have a refill, and don’t have to interrupt your meal with a decision of whether to spend another $1.95.  I doubt I’m the only customer that sees it that way.  Luckily for them, I like the food enough to keep going there; but I wonder how many customers they will lose with this policy (never mind how many drink sales will be lost).  All to save 10 cents.

If business is slow because the economy is slow, then perhaps raising prices is required.  But don’t start charging for things that your customers have come to expect as part of the normal transaction.  Your customers don’t mind paying a fair price, but they will rankle if you seem desperate to get every possible cent from them.

And one final point – if the economy is truly affecting business, that means customers are looking for deals more than ever.  This means providing value (not necessarily offering the lowest price).  It’s better to increase the value of the offering (even if this means increasing the price) instead of trying to offer less for the same price.   Provide more value than your competitors and you will win, even in a slowing economy.

2 Comments

1

Hi Andy:

I have to agree with you 100%.

My Dear Aunt used to say: “It’s not what you say to someone, but HOW you say it!”

Having an Internet Business, I have been thinking what I can do to help members during the slowing economy – how I can provide more value. In my case I can do it.

Whether they choose to accept the added value feature is up to them, but I can surely offer it in good faith and “give them” the choice.

Thanks for bringing this subject up. People may be confused on what to do and how to do it! Your blog post provided food for thought!

Take care.

Roz

2
Daniel Freysinger
May 25th, 2012 at 4:00 am

“If business is slow because the economy is slow, then perhaps raising prices is required.”

This is exactly where I believe most businesses are screwing up. Take the post office for example. They continue to respond to tough economic times with higher prices. When shipping a package through the post office costs as much as shipping through UPS, people will use UPS.

Restaurants are making similar mistakes. When less people are eating at your restaurant, it is time to lower prices and give them a reason to come back.

You are much more forgiving than I am. $2 for a soda without a refill would land a restaurant on my blacklist. There are several on there for similar infractions.