27 February 2009

Economic Quiz

Okay, here's a quiz: Let's say you are a business of some kind -- restaurant, clothier, retailer, whatever -- and the economy takes a downturn. At the same time, the price of gasoline goes up, as does the wholesale cost of items you use in your business -- meat, milk, corn, fabric, copper, whatever. How do you react to the increase in your cost to do business?

Do you:

a: Do nothing because you know the downturn is temporary. You might make less profit, but that's okay.

b: Raise your prices a little, to recover some of your additional expenses, even though you know you might lose some customers.

c: Raise your prices a lot to completely recover your additional expenses -- if you have to pay more your customers should have to pay more -- even though you know you will lose more customers.

d: Lower your prices to make your product more affordable. You might lose some of your profit, but with the increase in business you will make more on volume.

In this quiz there is really no correct answer. Too many factors need to be considered -- including the status of your employees. Personally, I think either a: or d: would make the most sense. After all, if the economy is already hurting raising prices will only make things worse. However, you might be surprised how many companies apparently think b: or c: are the right answers -- as shortsighted as those actions probably are.

One grocery store, Safeway (where we do our shopping), has come up with another option: telling brand name companies that they had better lower their prices or Safeway will start more aggressively pushing its own less-expensive house brands.

Way to go, Safeway!

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