Thursday, February 22, 2024

Is lowering value for money the right strategy during recession?

Posted by Elena del Valle on December 2, 2009

When my budget is tight I strive to obtain as much as possible for my money. I examine purchases to make sure they offer the best value for money. In doing so I look closely at new and existing vendors. I’m most likely to patronize those vendors that offer the same value I have received in the past. Vendors that offer additional benefits compared to past purchases and existing options are the most likely to receive my business.

I am in good company thanks to the spreading economic crisis. Many, if not most, consumers face the same decision issues today. According to a recent Mintel (“a global supplier of consumer, product and media intelligence”) survey, a majority of shoppers said they always look at sale items before shopping for non-sale items, especially in department stores (64 percent), at mass merchandisers (53 percent) and at discount apparel stores (53 percent). Four in 10 shoppers said they spend a lot of time looking for clothing sales and shopping around for the lowest price.

That is why I find it puzzling and self defeating to see the increasing number of companies that decrease benefits for the same cost. To illustrate I will tell you about a favorite restaurant my husband and I used to visit regularly. Although the food was nothing to write home about for years we stopped there on weekends for a quick bite and to enjoy the stunning and extraordinary waterside setting the historic restaurant offered.

It was a popular restaurant. Often there was a long wait (an hour or more) for a table, longer for the section we liked. As the economy soured the crowed thinned. Now here’s where it gets interesting. As fewer guests came the restaurant management began cutting back on the quality and quantity of the food. The prices remained the same. The cloth napkins were replaced with paper napkins. The yummy Hawaiian bread and warm cornbread had to be requested instead of being brought automatically as in the past. After a while, the nice bread disappeared completely to be replaced with boring buns. The guacamole was excised from the fish tacos plate. It could be ordered for a supplement of $1. The portion size became smaller than ever and the quality of the food diminished. The prices remained the same.

Eventually, and worst of all, the quality of the food dropped so much I couldn’t eat it. For a while we had struggled with the state of the restaurant but kept on going hoping that the management would realize that taking good care of the loyal customers that remained was the best avenue to surviving difficult times. Instead things continued to worsen. After several more disappointing visits we stopped going altogether.

Last week the Air Transport Association predicted holiday traffic would drop 4 percent and others speculated that the drop in air traffic would be ever greater during what is historically one of the busiest travel weeks of the year. It’s no wonder with high unemployment, a deep recession and airline surcharges for holiday travel. It’s bad enough having to travel through crowded often ill designed, uncomfortable airports; and run through the gauntlet of airport safety checks, removing sweaters, belts, shoes, watches, and even jewelry to pass through; sometimes being wanded or patted down by a stranger; and obliging any instruction an arbitrary security agent provides to get from Point A to Point B on an overcrowded airplane (although there are fewer passengers than in past years the airlines have reduced flights leaving remaining flights overcrowded) when there is so much stress in our lives already.

If they want to improve their bottom line and customer loyalty, should airlines be offering better deals and more incentives; and doing everything they can to make it more pleasant and easier than ever for passengers to travel? Are they doing that already? Is adding luggage fees and holiday surcharges producing the results they desire? Are passengers likely to eagerly book when they return from full flights that results in increasingly less comfortable travel experiences?

It seems counter intuitive to raise prices and lower quality and quantity when everyone is cutting back budgets and looking to maximize value for money. And yet that seems to be what so many companies are doing. From a marketing perspective to draw traffic you offer an irresistible product or service or the perception of it. There are many examples of this. A prominent one is the ubiquitous iPhone, and iPod. Thus far Apple has survived, some would even say thrived while so many others have gone the bankrupt.

In the absence of a product the customer can’t resist the vendor can offer good or better value for money to sweeten the deal. Should smart executives increase marketing and public relations budgets to spread the word and remind the public of their brand, product, or service and prompt a purchase as soon as the customer is ready? Instead so many companies are doing the opposite, offering poor or lower quality and lesser value for money than in the past. Why then are they baffled to see their bottom line affected?