By Kevin Moore
The effect of recession for retailers and shoppers can be felt through such simple things as buying good quality shoes. The recession has lowered costs for premium items as demand lessens, but does it mean these items are really worth less? Does quality cost less in a recession? And were we paying the right price then, or are we now?
Paco Underhill who spoke at the National Association for Retail Marketing Services in Colorado Springs in April. He told the story of a purchaser who bought a pair of shoes from Danish shoe manufacturer Ecco.
Ecco has a reputation for designing and producing a very comfortable shoe.
So comfortable that two years ago the maker retailed them for – and the purchaser was willing to pay – the princely sum of US$179 for a pair.
But when a year later the satisfied shopper finds a pair on sale for US$79, as we entered the recession, imagine his pleasant surprise at finding such a bargain.
This response quickly changes to disappointment and confusion when, a year later again, and deeper into a recession, the same shoes sell for US$23!
Make no mistake; the efficacy of the product hasn’t diminished with the price, but what’s the right price for a new pair really?
Let’s move from Underhill’s experience of shoe shopping to my application of the same principles to a rather more expensive purchase.
One of my senior managers just bought a high performance Audi S3 demonstrator. Not a new car – as it’s bad manners to buy a new high performance car in a recession. The Audi’s list price was close to AU$100,000 but my colleague paid less than AU$70,000. Again, it’s no slower and no less sexy that it was before, but what’s the real price for a new car?
In every shopper’s mind, each time this happens we have an initial feeling of elation that we’ve found a bargain, followed by uncertainty about what the actual price of the item should be. We know what it cost – because we paid for it – but what is its real value? Are we still paying too much, at a time when we’re more nervous about our jobs.
And next time we buy, how will we know if we’re paying the right price?
As we’ve entered the recession, many of the price/quality equations we’ve naturally absorbed through our previous shopping experiences are being seriously challenged. That’s great news when we believe that we’ve found a bargain, but followed by confusion for future purchases.
One thing is assured – through the price confusion we face – it will be many years before shoppers pay that ‘full’ price again.
Retailers and manufacturers now need to look for ways to lock in this new lower price in order to retain their customers and loyal consumers.
To keep prices down, retailers and manufacturers will need to find innovative ways to drive productivity through the supply chain, production environment, sales and marketing structure and within general overheads.
Then to start raising prices back up again in the future, they’ll also need to create innovation in new products, or in the way new products are presented. That will be the key to success in the recovered economy.
This recession is certainly challenging businesses and retailers, just as it is helping shoppers!
Kevin Moore is the CEO of Crossmark Asia Pacific
www.crossmark.com.au
