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I was reading an article the other day about the restructuring of Alcoa, a company that has been hit hard by the current recession. Their president was extolling about the many aggressive changes they were making and their progress in leaning down their worldwide operations. At the end of the article he closed with an interesting comment. He stating that, even after the economy recovers, Alcoa was not going to give up the efficiencies they had achieved. What did he mean? This company has laid off 1000’s of workers, closed dozens of plants, and re-negotiated pretty much every contract they have including hourly to executive salaries and benefits. While the economy barely grinds on, companies like Alcoa have been building war chests of cash to insure that, if the economy doesn’t respond as it should, they will have the resources to carry them through. As these companies begin to take their first sigh of relief believing that the New Year coming might be a turning point, there is a new fear growing in America.
Companies that have now cut their operational expenses to the bone are becoming more and more concerned that they will be forced to give them back once the economy rebounds. The fact is, many of these companies have it quite good right now and they don’t want to be forced back into the competitive world that exists in a robust and expanding economy. What if their employees no longer feel they should have to do the work of 2 people or decide they want their pay cuts back? What if their vendors no longer need to cut their margins to the bone just to keep their doors open and start walking away from the negotiating table? What if they have to start paying for advertising and marketing again to stay next to their competitors in the market place? What happens when these sweet deals that have been making come up for renewal and they have to re-up at 2 or 3 times the cost? This is the new greed, and like those companies who were slow to cut expenses and paid a dear price, so will it be for the companies who try to extend the sympathy of a global recession and miss out on the benefits of a renewed economy. Key employees will leave, production will come to a standstill, quality control will go out the window, and market share will drop like the stolen goods of a runaway thief.
Even more startling is the effects of underpriced products. Here at ETTSI, I’ve been resistant to lower my Travel Certificates and Incentive Premiums prices to meet my client’s demands because I would then also have to downsize my staffing to make up for it. We are primarily a customer service organization so the problem is; I can’t cut my staff because my clients still expect the same level of customer service even if they are paying half the price or less. Most companies are doing all they can to please their valued customers even with strained resources but some are taking advantage of the greed of their clients by offering look alike products that are nowhere near the same quality with no intention or ability to support them. The end result will hurt the entire business segment from top to bottom once things start rolling again.
If you were planning for your business to be around the next couple of years, you might want to rethink your purchasing strategy if it’s based on squeezing every last cent out of your vendors. You need to make sure that these great prices you are getting are actually providing products and services that can still enhance the value of your company to your customers. If not, then it’s time to re-evaluate your profit margins and pricing to make sure that what you are selling is worth what your customers are paying. I’ve already begun to notice an increased frustration from consumers who can easily voice their anger on the internet towards a company who they feel has failed to deliver as promised. These internet savvy consumers can make or break a company with just a few posts on the right blog. The money you have saved will not be near enough to buy back their trust and the trust of those they have influenced.
“The bitter taste of pour quality lingers long after the sweetness of a low price.” I remember hearing my father say these wise words early in my youth and they have stuck with me all the days of my life. After reading about the Alcoa story, I wondered if fathers still say things like this to their sons anymore.
Tags: economy, incentives, product pricing, purchasing strategy, travel certificates
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