Ever since the Great Crisis of ’08, business has looked different.
Those of us who are old enough to remember those heady, pre-crash days, look back fondly on the positive world of trading with a view to making profit. But ever since 15th September 2008, when Lehman Brothers collapsed, leaving Western civilisation staring into the abyss, the approach to making a deal has shifted. We are now all more concerned about not losing money.
This has led us into a mental spiral of driving costs down, and that means driving down the prices of our suppliers.
This is a message maintained by consumer society, where adverts bombard us with ‘Buy Cheap’, ‘Watch the Pennies’ and ‘Save Money Now’, a theme that has been upheld by big corporations the world over.
For example, as the Wall Street Journal reported soon after the credit crunch, Kraft used the slogan, “the wallet-friendly meal your family will love.” Meanwhile, Campbell’s Soups (a well established brand that usually focuses on quality, promoted its condensed soups with ads that read, “To save you money, we left one ingredient out (we figured you have plenty of water at home)”.
If these two successful brands are keen to concentrate their marketing on low price; shouldn’t we all be doing it?
Julia Cupman, Global Director of business consultants, B2B International, doesn’t think that price focus is always the correct approach. She notes that, “Luring buyers into a low value mindset is dangerous.” She refers to the Campbell’s Soup Company’s decision to highlight the low cost of a tin of soup as a negative move. “A company that at one time was positioning itself in its marketing communications as a provider of quality has now damaged its brand by changing its focus (to price).”
Much has been written on this topic. With numerous experts, marketers, economists and psychologists arguing that price is not the greatest factor in deciding to buy or not. They speak of ‘perceived value’, ‘price leadership’ and ‘value propositions’.
But why do so few experts want to acknowledge the importance of price?
Price is important. As the British government private/public support partnership, Business Link, states, “Price is the only element in the marketing mix that produces revenues; all others represent costs.”
Certainly fortunes have been made by those devising new products and markets; Microsoft, Colgate, Facebook, Hoover and others did not focus on price, and made a fortune. But plenty of others have had huge successes based on price.
The British supermarket giant, Tesco, was founded by Jack Cohen on the principle of ‘Stack it high and sell it cheap.’ Similarly, one of Walmart’s first stores was called “Walton’s Five and Dime”, thus incorporating low cost even into the brand name.
Certainly Henry Ford was innovative and is often quoted for his belief in quality, but his business model was greatly dependent on price. In fact he said, “I will build a car … from the best materials, by the best men to be hired, after the simplest designs … but it will be so low in price that no man making a good salary will be unable to own one.”
Ultimately, something can be too cheap, but only if bought from the wrong supplier. If your business connections are trustworthy, have a good credit rating and a reliable trading history, then there is no shame in driving prices low. After all, business is business, and if your trading partners are wise, then they will look to the long-term and ensure that each deal is satisfactory to both parties. If this is the case, then cheapest is best.