The top five sneakiest ways to pass on costs to your customers ~ Brand Mix

Monday, July 28, 2008

The top five sneakiest ways to pass on costs to your customers

Rising oil prices are driving up costs for everyone from food manufacturers to hotel operators. At this point, few companies are able to fully absorb these costs so they face the challenge of how to pass these costs onto their customers.

It's not surprising that companies are reluctant to put up prices. They are worried how customers who are not conditioned to expect or accept higher prices will react. That's led some companies to go another route and pass on costs by a variety of sneaky tricks.

And the nominations for the top five sneaks are (envelope please):

  1. Use cheaper (lower quality) ingredients: Mike Neiss, writing in The Tom Peters blog, talked about his health club changing its detergent and making the towels "scratchy" and lowering the temperature of the pool by 5 degrees.

  2. Downsize*: One example from my local coffee shop. My breakfast treat of choice: Granola with fruit and yogurt to go used to cost $7 for two containers (one for the fruit). The last (and final) time I ordered the same product, it was $7.60 with everything crammed in one container. The Consumerist has a continuing series called "The Grocery Shrink Ray" which details CPG company downsizing examples.

  3. Reduce service quality: Mike Neiss points to restaurants that are not fully stocking their wine list and hotels that are taking away amenities. Trouble is that it's often these seemingly little things that matter the most.

  4. Make your front line employees suffer: It can be the same work with less employees or less salary or benefits per employee (or both, I suppose). Circuit City took this approach to an extreme when it decided to fire all its senior salespeople and replace them with cheaper, new hires.

  5. Add charges for things that used to be free: You had to know that airlines would make this list and, of course, they do. As Chris Wilson says in a recent post: " I wonder what airlines are thinking when they decide to clutter procedures with extra fees for passengers to agree to, and the rabid slash and burn of any extra service that used to be included in the ticket price." Seth Godin has an extreme example from Air Canada that adds capriciousness into the mix.
Sneak is weak. Only honesty will pay off in the long run.

1) Everything Matters... : The Tom Peters Blog
2) The Grocery Shrink Ray examples: 1, 2, 3: The Consumerist
3) Meatball Sundae Thought #2: Get your story straight: (Details of Circuit City's innovative approach to employee engagement) Brand Mix
4) Human Talk: Airlines: Chris Wilson in The Marketing Fresh Peel

* Note: restaurants like The Cheesecake Factory that serve gargantuan mounds of food that none but the most determined can possibly finish get a free pass on this one. They'd be doing us all a favor.

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