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