The Price/Value Equation and the $1 Razor

Original post date April 1, 2009

A few weeks ago, my wife and I got a chance to get away for the weekend. On our way to the hotel I realized that I had forgotten my razor. We were passing a shopping center at the time so we pulled in and I spotted a Dollar General store.  I went in and bought a $1 pack of razors. A commodity product, down economy, it was necessity; so I figured it was a good decision… until I used it.

The only way I can describe the experience is to say that I couldn’t tell if the razor had a blade on it until it sunk deeply into my skin. It skipped over some parts of my face and dug in on other areas. I had nicks and cuts everywhere; I looked like a schoolboy after his first shave. The lesson I took from this is that sometimes I think you have to feel the pain to understand and/or appreciate the value of quality.

From what I have observed lately, I believe companies are starting to, or will come to this same realization. We’ve all cut back to weather the economic storm. Are companies doing a much better job at managing costs now? Absolutely. Have they finally made the cuts they should have made a year ago? Yep. Have they perhaps gone too far with some of their cost cutting? We’ll see.

What’s important to remember about this economic downturn is that it started in 2007. It’s only gotten dramatically worse in the past six months, but many companies started cutting back long before the current “crisis” hit. As a result, three or four rounds of adjusting cost to meet declining revenues have already occurred.

The fat got cut a long time ago. They cut into the muscle around mid-year last year and now are cutting into the bone in many industries.  If you’re a vendor or service provider like us, you may have experienced this first hand. But hang in there; I believe that companies will return to quality providers. It’s only a matter of time before the results of the “nicks” and “cuts” really begin to hurt.

Each company has a different tolerance for pain, but when, for example, the “cost saving” decision to change your outsourced customer service provider leads to rising customer attrition and declining service levels, those “cuts” will begin to sting. When this happens, and customers can see recovery on the horizon, they will come back to quality.

The question you need to ask yourself is; has your organization created the $1 razor? With all the cost cutting, is your product/service at the same quality level and/or can you deliver the same customer experience. When customers do return…so do their expectations.

Be careful, during an economic downturn the price/value equation can become unbalanced. Like many companies, you’ve probably created a lower cost, stripped down model, hoping to gain or hang on to market share. If customers return with smaller budgets, will they adjust their expectations of value as well? Should they expect less? Probably, but will they? Not unless you manage their expectations.

Adjustments will have to be made, and it will not be a smooth shave. You may already have the “nicks” to prove it but don’t let your customers end up feeling the pain.

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scott.gillum

Scott is the Founder of Carbon Design Co and the former head of the Washington, DC office of gyro, the largest B2B agency in the world. Prior to joining gyro, he spent a dozen years at a professional services firm that specializes in B2B sales and marketing. Scott also writes a monthly column for Media Post and has contributed to three books on B2B Sales and Marketing. Follow him on Twitter @sgillum

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