It's tempting to feel grateful for every customer you have. You should fight that feeling.
Josh Hyatt, CFO Magazine
January 1, 2009
As a consumer I'd like to make a comment on Best Buy which is cited as a good example of how to punish the consumer for trying to return merchandise. I bought an item from them and found it was defective. When I returned it the next day I was told there was a restocking fee. I had to laugh at the implication that they would restock a defective item for the next customer. Needless to say I am no longer a "good" customer of Best Buy. I have found other retailers who are much friendlier and now am very careful to ask before purchasing anything of value.
Posted by Rachel Lebla | January 22, 2009 10:06 am
The implication is certain customers of a company are essentially taking advantage of the pricing strategy of that company. These types of analysis are nothing new. It also tends to "pop up" during tough economic times. The summation essentially asks a company to turn profitable during tough times and it will have only upside in good times because they have trimmed fixed cost. Again, this is nothing new. The argument is always how. Generally, these unprofitable customer analyses are based on proprietary data and are considered apart from the marketplace in which the company operates in. It shows no correlation to the marketplace or competitors' pricing strategies, the actual consideration that goes on in the mind of a consumer who has many choices. For example, an analysis may show that some customers are unprofitable because they only buy the loss leaders of the given company. But they buy loss leaders because management chose those products or services to be loss leaders relative to the competition as a point of differentiation. Because of this differentiation, it also draws in the good customers. They are good customers because they buy other products or services. This occurs a lot in a crowded marketplace with many channels especially for commodity products with many substitutes. Discounting also occurs during recessionary times because typically economists cannot see these times coming well in advance and hence advise retailers to curtail orders in the pipeline. Who wants to follow doomsayers anyway? So, caught with seasonal or discretionary products that are suddenly turning slower, the company discounts to recoup capital investment. Recession is a natural cycle of any economy. No one likes it when times are tough. Cost cutting is inevitable. Trimming of weak players and the excessive inventory are all part of the process. But by blindly implementing changes to pricing strategies without considering competitors or having a key understanding for consumer choices could actually cause irreparable damages far exceeding the targeted benefits.
Posted by Jerry Chiu | January 22, 2009 08:28 am© CFO Publishing Corporation 2009. All rights reserved.