We must be ready when it is time to start our businesses again. Yes, COVID-19 threw us a real curve ball and many competitors did not survive. When we do start, however, we need to jump back on the battleground and compete. But, please remember, competing is not all about price.
Like many, I lived through 9/11 which also shut down the economy, at least temporarily. Part of my job in working with printers was to buy hotel space for eleven meetings a year throughout the US. Usually twice a year in the same hotel, so the business was attractive.
Now, you may remember that 9/11, like COVID-19, crashed the hotel and airline business. Meetings were cancelled and airlines flew half-full. And while we cancelled a couple of meetings as well, we were one of the few that started meeting again quickly.
Guess what I found about prices? Did hotels come down because there were so few customers wanting to hold meetings? No. Prices went up ten to fifteen percent. That was because, the hotels reasoned, the number of organizations holding meetings were down, therefore they had to increase prices in order to have a shot at breaking even.
Airlines were similar. Instead of leisurely flying in a half empty cabin, I found myself stuffed in completely full aircraft because the airlines reduced the number of flights.
Oh, yes, they raised fares and stopped deep discounts. And they added special fees on everything from food to checked bags.
Now, that is the exact opposite of printer-think.
If most printers owned a 100-room Interstate hotel, and we sold 95 of those rooms for the night, we would discount the remaining five so we could get “marginal contribution.” After all, some money is better than no money, right?
Wrong.
Stop in around 11 pm at a roadside hotel. Ask them for a discount. Not only will they refuse, but they will likely charge a premium because your choices are limited.
And so, it should be with us.
If we don’t sell all of our capacity that’s alright. It gives us time to train as well as clean and maintain. You know, the stuff we never get time to do.
So, raise prices now while you are not doing anything else.
Ah, hah. Many say that will cut volume. Nope. And you never heard that from the economics professor either.
There are different classes of economic competition. The one you remember is “perfect competition,” where price does have a DIRECT effect on volume. That requires the same product, no scarcity, and perfect information. One share of IBM stock is a perfect substitute for another, so it does not matter which one you buy.
That is not our world.
Neither is Oligopoly or Monopoly.
Our world is Monopolistic Competition where there are three elements determining our sales volume: Price, product, and sales activities.
Now, I didn’t say price didn’t matter. I said price did not have a direct relationship to volume. Don’t believe me? Cut your price in half, don’t tell anyone, and let’s see if your volume doubles. It won’t.
We must have an adequate product. If it is faulty, then you are blocked. You’ll never increase sales regardless of how low you price.
But don’t overkill either. Don’t buy the most expensive equipment and put it in the highest cost location only to sell it for the lowest price. If you are going to be the low-price seller, then you must be the low-cost producer.
Our biggest lack, however, is our failure to sell.
In the meantime, since you are not doing anything, raise prices.
And if you need a guide to what they should be, check out my subscription products at https://crouser.com/shop/price-guides/.
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Tom Crouser is chairman of CPrint International. Message him at tom@cprint.com or call his cell (304) 541-3714.
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