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Price and profit

February 10, 2014 by Dale Furtwengler — President, Furtwengler & Associates, P.C.

A January 9, 2014 Washington Post/Associated Press article, "Retailers of all stripes sing holiday blues," states that seven retailers have cut fourth quarter profit expectations. The article goes on to say that "Retailers discounted early and often to get shoppers into stores."

Hmmm, those lines sound familiar Of course, they mirror a verse from my December 9, 2013 The Grinch and Me poem:

"In my dream the Grinch lowered prices

He lowered them early

He lowered them often

Yet buyer's resolve did not soften"

I'm trying to recall a year in which I didn't see a similar headline and am failing miserably. Every time I see headlines like this I can't help but wonder:

• How is it that retailers consistently fail to see the relationship between price and profits?
• What makes them think that lower prices will get people who don't normally shop at their stores to suddenly rush in?
• When they're struggling to get shoppers into the stores, how does lowering the price (which means they need even more customers) solve the problem?
• What makes them think that customers are so naive that they don't realize that waiting will net them tremendous savings?

Can it be that retailers are surprised at the outcome given their long, rich history of failed discounting?   Are retailers really so obtuse or are their memories so short that they cannot recall prior years' failures?

What I suspect is that retailers believe that it's easier to compete on price than to differentiate. Indeed, it seems that they view customers as a homogenous lot with indistinguishable interests. Nothing could be further from the truth.

What's sadder yet is that there are tons of research and data that show us, whether we're selling B2C or B2B, how to differentiate our offerings, yet they continue to repeat failed attempts to compete on price.

To make matters worse the availability of big data to the largest retailers, which offers exceptional capabilities for differentiation, is either being squandered in unimaginative uses or forgone in favor of price competition.

Regardless of the root cause of retailers' behavior, recent history suggests continued price competition and the ever-predictable disappointing profit results.

The questions you need to be asking yourself are, "Am I falling into the same trap that's caught retailers? Am I repeating failed efforts hoping for a better outcome? Am I viewing all customers as being equally valuable to me and my company? What am I going to do to stop this madness and reap the profits my value warrants?"

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