Should You Ask for Steep Discounts in a Recession?

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Not that you need to be reminded, but we are at the start of what looks like being a long and deep recession. Many customers have stopped buying, businesses are running out of cash and staff are being laid-off right, left and centre. During a recession, buyers typically have much more power to extract deep discounts from suppliers than would normally be the case. Many businesses have high fixed costs and even deeply discounted sales help pay them. Having said that, no business can survive for long if the majority of its sales are so deeply discounted that it looses money on each one.

Armed with this new found buying power, the customer faces a real dilemma; should he ask for as steep a discount as he can get and not care whether businesses fail? Or should he support businesses by asking for a fair discount, one that doesn’t drive businesses into bankruptcy?

Option 1: Go for the Steepest Discount You Can

The obvious option is to go for as steep a discount as you can. You are the customer and particularly in a recession, the customer is king. If you can’t get a steep enough discount from one supplier, there are always plenty more to choose from. Only if no supplier will sell to you should you consider asking for a lesser discount. If you aren’t being unreasonable in your request, you will often find a supplier who will sell to you at a steep discount. You may have to accept lower quality, but not neccessarily. There are some great bargains to be had if you ask for them, particularly in expensive items that are not selling well. Often the supplier is motivated to sell by having to shift inventory, by having to keep a production line busy, or just by still having out-dated volume targets to hit.

Recessiosn are tough times for suplliers and not all of them make it. This is Darwinian selection in operation as the least adaptable businesses go under. Many of the most successful names in business were founded during or shortly after previous recessions. Companies like Intel, Google and Ryanair. They all saw opportunites to disrupt markets by offering customers exactly what they need, with no frills, at much lower prices. Perhaps it is time for those non-customer-centric companies to finally go bust. Perhaps it is time to unleash a wave of creative business destruction.

Option 2: Support Your Suppliers

The other option is to support your favourite retailers by giving them all your custom and by only looking for fair discounts. Although you are the customer, it would be plain stupid to demand such steep discounts that your favourite local deli, or supermarket, or even car retailer eventually went out of business. The recession will probably be with us until at least the end of 2010. The last thing you want is for local retailers to be decimated by the recession, leaving the way open for bland, big-box retailers to gain a foothold, or worse still, for you to have to drive to the next town just to get a decent latte macchiato!

Some customers, seeing their local retailers start to close, have already rallied round to support them. For example, Starbucks’ customers have set up a Save Our Starbucks website to petition Starbucks to keep some of their coffee shops slated for closure open.

And supporting your suppliers can have a big impact on B2B businesses too, as Land Rover found out a few years ago when its sole chassis supplier went into liquidation. Land Rover was forced to temporarily halt its Discovery production line as it haggled with the chassis suppliers’ liquidators over funding. At one point the liquidators even demanded a GPB45 million payment as they tried to use Land Rover’s weak bargaining position to their own advantage.

You Decide

So what do yu think? Should you go for steep discounts in safe in the knowledge that the market will quickly fill in any attractive holes in eth business landscape? Or should you support you suppliers so that a nasty surprise doesn’t fill up any hole?

Tip of the hat to Ginger Conlon at the Think Customer: The 1to1 blog for getting this conversation started.

Graham Hill
Customer-driven Innovator
Follow me on Twitter

Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.

Further Reading:

Reinhart & Rogoff, The Aftermath of Financial Crises

McKinsey Quarterly, Mapping Decline and Recovery Across Sectors

Cleveland.com, General Motors loses $2.5 billion, is running out of cash

Calgary Herald, Black Monday: 70,000 jobs vanish

CNN Money, Chrysler unveils deep discounts

McKinsey Quarterly, Learning to Love Recessions

Creative Destruction, Creative Destruction Blog

Save Our Starbucks, Save Our Starbucks

BBC, Threat to Land Rover jobs

Ginger Conlon, Think Customer: The 1to1, The Customer Experience

3 COMMENTS

  1. (FFT = food for thought)

    Falls right into the ‘reverse perspective’ trend that tries to advance customer centricity by the various models of CMR (customer managed relationships), through ‘buyer-centric commerce’ to Doc Searls’ latest VRM…

    I would only suggest not to position these 2 options as exclusive (‘either/or’). What our community has long been preaching is differentiation. Customers can segment their suppliers: fight with deep discount pressure those who deserve to go out of business, and support with loyal patronage and fair dealing those, who they want to keep a relationshi with.

    Being the recklessly positive person that I am, I would even give the ‘bad guys’ more chance – by showing them what they have done wrong and giving them back some of their lost margin in exchange for effort to improve my experience. This may help them migrate to the other ‘segment’ and survive the crisis. If they fail the customer centricity test, I will have no regrets.

    Now let’s put our business hats (back) on. Knowing that customers might reason as Graham suggests, how would we deal with them in recession times?

    Vladimir Dimitroff
    Director, PRISM Consulting

  2. Hi Vlad

    Thanks for commenting.

    I agree with you 100%. Being differentiated is a key success factor at the moment. And so is reducing costs, particularly by cutting-out stuff that no-one would willingly pay for anyway. We should reward companies who give us the stuff we want at the right price (in these cost-conscious times). But we should do so with an eye on the social responsibilities (did I really write that?) we bear for local communities too. No-one wants local retailers to go bust. Not the good retailers anyway. Companies in turn must recognise that this is a great time to innovate around business models, particularly disruptive ones. No company has a right to stay in business, in good times or bad. They do so by giving customers what they want at a competitive price, whilst making a reasonable profit.

    May the fittest retailers survive.

    Graham Hill
    Customer-driven Innovator
    Follow me on Twitter

    Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.

  3. Love your question and your thoughts Graham.
    It reminds me a bid on what I learned about World War II and the Marshall Plan. Not that I was part of it *lol* but what I learned about it.

    The totally insane Germany needed to be completely destroyed in the first place to get something decent out later on. Toady it is one of the top GDP contributor and probably less dangerous from a war potential point of view than the Galapagos islands 😉

    Businesses just went to crazy, ignoring all signs of customer recognition and focused entirely on business process automation and were even proud to have a “low touch sales model”. If you read my perspective on RECESSION you see what I mean.

    So my answer is and I’m actually acting that way: Support all those suppliers who listen and care about me as customer. I hate to nickel and dime anyway – but those who just didn’t learn anything, I’d squeeze a tenth of a penny if I can. Not that this makes me rich but stops them even faster. Our recession may be even more brutal but shorter.

    @AxelS

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