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  October 25, 2013
The Race to the Bottom...

 

 

I recently found myself at Best Buy to purchase a new iPad cover. 

While meandering up and down the aisles, I saw a young lady scanning price tags of televisions on her smart phone.

I was curious as to what she was up to, so I stopped and asked her...  

She brazenly told me that she was checking Best Buy’s pricing against similar items that she can purchase 
Buy Nowless expensively from a retailer on the Internet.  She bragged that she expected to save about $50 (on a $600 TV).

 ... plus she didn’t need to pay the sales tax if she bought it from a site outside California.

I then asked her... why do you need to come to Best Buy if you’ve already decided to purchase the TV from an online e-tailer?...

She explained that she wanted to look at the televisions in the store... because there was no practical way for her to see what she was buying via the Internet... this way she could compare and contrast features and screen quality... and then make her actual purchase later.

Now I’m fairly certain that my experience with this girl wasn’t an isolated incidence by any means.  People do this every day.

My good friend Mark operates a small business that sells fitness equipment.  

He has told me, in the past, that this type of shopper is a regular occurrence in his retail store.

I asked him how he can try to combat this type of shopping... and he told me that frankly he had stopped trying.

Instead, he tells me that he has now tried to embrace the customer by offering them something that they can’t buy on the Internet... his knowledge and know-how.

As it turns out, most of the fitness equipment purchased on the Internet needs to be assembled and serviced.  Additionally, there are many various accessory items that are not included with their purchase such as ground mats (you’d hate to ruin your new hardware floors) and convenience items such as drink stands and personal fans.

The installation... the service... and the accessories are all high margin profit centers for Mark.

He welcomes price shoppers into his store with open arms so that he can establish a relationship with the customer... not to sell them equipment... but rather to sell them his after-sale support.

Mark’s competitive advantages are knowledge - how to correctly assemble and service complicated fitness equipment and his know-how - what add-on items are required / wanted to make the equipment more useful.

We see this same thing in our business almost every day.

A customer will tell us that our prices are too high as compared with buying similar products in China.

I try to explain to the customer that OptiFuse is not trying to compete with the pricing that China (or anywhere else for that matter) can offer.

The customer, upon further investigation, will soon discover (perhaps not until it’s too late) that their supposedly low purchased cost from China isn’t all that low once they weigh all of the factors.

The neglected considerations might include:

  • The difficulty in finding high quality manufacturers
  • Ocean or airfreight costs
  • Local transportatin and port handling fees
  • Import duties
  • The cost of an import bond (required by U.S. Customs)
  • Wire transfer and other banking fees
  • The time-cost of money (most factories require cash-in-advance)
  • Language difficulties
  • Lead-time to get parts (typically 10-16 weeks)
  • Maintaining quality standards (your first article samples might be okay... but what about future orders)
  • The need to place large minimum orders

Not long ago, I actually had a former customer contact me requesting a favor (this customer left us after many years of great service to purchase parts directly from a source in Asia).

Apparently, this customer had prepaid a considerable amount of money to the vendor for some component parts, but now the vendor appears to have absconded with their money.

I asked the customer what they wanted me to do about it?

They pleaded with me to use our company’s network to assist them to locate the people responsible for the theft and then to help them to locate a more reputable company to work with (still refusing to do business with us directly).

I respectfully declined... I have better things to do with my limited resources.

The new millennium has brought us a new economy... an economy of no-frills airlines, 99¢ stores, Internet shopping, and club stores where you’re required to purchase a years’ supply of something in order to save a few pennies.

Today everyone appears to be looking for bargains...

...but are those things that we end up with truly bargains?

Is it a bargain to buy a plane ticket for $200 only to have to pay another $100 for baggage and other airline imposed fees?

...or so much food that it spoils before we can eat it all?

...or a cheap car that we buy that ends up spending more time in the shop than on the road?

Many times... what we think is a bargain ends up costing us more in the end... even if it’s not money... but in time, grief and aggravation...

Maybe the pendulum is starting to swing a bit to the other side.

Finally there are some companies embracing the fact that some people are fed up with inferior products and/or service.

Recently my wife and I went to a new luxury movie theater, Cinepolis, where the chairs reclined and restaurant quality refreshments and adult beverages can be brought directly to you by a server.

The cost of admission is about $10 more than that of a "regular" multiplex with small uncomfortable seats and over-buttered popcorn...

While it is true that both crowds saw the same movie... the cinematic experience of Cinepolis has now raised the bar to a point where the real bargain was not saving $10 but rather creating a truly memorable experience for me and my wife.

I must not be the only person who believes in service as the house was packed with patrons...

I suspect that there will be more of these types of service companies forming in the future... to support those people who understand that life isn’t a race to the bottom (or bottom line)...

There will always be patrons willing to pay top dollar to receive top service and/or product quality.

If you’re in business... you should be thinking about what you can offer to your customers other than low prices...

... if not... you’ll find yourself in a race to the bottom... a race that you’d rather not win...

Thank you very much for your support of OptiFuse where we always give our customers more value for their money. 



Jim Kalb
President

Email - jimk@optifuse.com
Website - www.optifuse.com

Blog - www.optifuse.blogspot.com
Twitter - @OptiFuse


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