Why Retailers Are going to Kill this economy?

[Marcus Cauchi]

If you make 30% margin and you discount by 10% you have to sell 50% more to break even on the discount. If you make 30% margin and you increase your fees by 10% you can AFFORD TO LOSE up to 25% of your revenue before you will make losses.

If you increased your fees by 10% (pure profit that goes on to your bottom line) would you lose more than 25% of your business? IN most cases, I’d doubt it.

Sellers have several really harmful habits. When a prospect raises an objection, instead of finding out why they raised it, why they raised it now and why it’s important to them, most sellers leap into defensive mode, justifying themselves or trying to convince the prospect his concerns are unfounded or wrong. That will end in a bun-fight and the seller usually loses. A man convinced against his will is of the same opinion still.

Sellers answer unasked questions. “You’re too expensive” - is it a question or a statement. Never answer statements, ask why they asked. Get to their motive. I’ve seen salespeople react with a stupid reply like, “well maybe we can knock off 10% if we can go ahead today”. Did the prospect actually ask for a discount? Do you even know if money is the real issue?

Sellers make unilateral concessions. “I want a discount of 15% or I won’t be able to recommend you to my board,” says the prospect. The sellers replies “OK, I can do that” and now the company has to make up the discounted loss by selling 101% more to stand still. Why didn’t the seller plant their feet and say “no”? Why didn’t they test to see if the objection was genuine and a real condition of doing business? Why didn’t they get something back of equal or greater value.

I lay the blame first at the feet of retailers who think being a good shop keeper is about sacrificing £billions of future profits in order to generate massively discounted, unprofitable revenue. Management has picked up the bad habit and reinforces this stupidity wherever you look.

My message is get a spine.

Plant your feet until your gums bleed and say “No! No! No!” to discounting. If you’re a manager tell you people discounting is not allowed unless there’s a damned good reason and it will come straight out of their commission or basic before the company takes the loss. Coach your people to plant their feet. Teach them how to say no and still get the business at premium rates. And if you’re too gutless to face facts, see you in Hell!

We’re probably both headed there but I earned my place. You probably got there by trying to get people to like you!!

 

[Mike Lewis]

An interesting post, Marcus. But I have to say you're making some sweeping generalisations.

Not all products or services have the elasticity of demand that you imply. And businesses vary in the degree to which they compete directly on price. In addition, the decision on whether to agree a discount or not depends on a range of factors, not just gross margin.

Also, you talk about retailers killing "this economy". The basic laws of supply and demand, and the mechanism of competition, are pretty much the same as they've always been, and don't depend on the present economic situation. Nor are they specific to retailers.

In short, I'm not really sure what point you are making. Are you saying that businesses should never give discounts? I would have thought that was a decision that each business must make for itself.

Mike

 

[Former Member 1]

I lay the blame first at the feet of retailers who think being a good shop keeper is about sacrificing £billions of future profits in order to generate massively discounted, unprofitable revenue. Management has picked up the bad habit and reinforces this stupidity wherever you look.

My message is get a spine.

The basic laws of supply and demand, and the mechanism of competition, are pretty much the same as they've always been, and don't depend on the present economic situation. Nor are they specific to retailers.

With all due respect Mike and not wishing to be antagonistic I have to ask...

And who sets these 'laws' and issues these dictats? ....Who built this mechanism? And how come the wheel bearings are rumbling and what does that noise indicate?

The notion is floated and presented that these 'laws' are as natural as "the coming of the seasons and the tides of the sea". They're Not! they're anything but that. And have at their heart a philosphy which is both exploitative (in a very negative sense) and ultimately self-anihilating...

In the past I've expressed my frustrations at the practice of management by rote: The idea that somehow you can plug some formula or theory into any given situation and come up with a 'sound' answer... Only the other day in another place some oaf started spouting about 'perfect competition scenarios' and seemed to be gravitating towards the notion that such scenarios were indeed perfect situations; somehow they were part of a wonderful world that could only lead to inexorable progress, sunshine lollipops and marvelous roses for all!

Truth is this mechanism is broken; the wheels are coming off because not only are the bearing shot but the chassi's been twisted all along...

Mark Lutz, in his book "Economics for the Common Good" observes that:

"Modern economics is thc science of self-interest, of how to best accommodate individual behavior by means of markets and the commodification of human relations . . .

In this economic world view, the traditional human faculty of reason gets short-changed and degraded to act as the servant of sensory desires. "

And though I'd disagree with much of what he writes in other places Lutz, for me at least, hits the nail squarely on the head here.

Dr Kamran Mofid writes in another piece...


"The use of mathematics in economics books and articles is very complex, no doubt very impressive. Along with physicists, economists seem to be those who rely most on advanced mathematical models, but there would appear to be a paradox here. Mathematics being synonymous with rigor and precision, how is it that it plays such a role in a discipline where vagueness reigns? The answer probably lies in the roots of this vagueness. Because the economic and social world is so difficult to grasp schematically, to reduce to simple laws, the temptation is to take refuge in fictitious worlds, in models which have little to do with what can actually be observed but which lend themselves to endless mathematical refinement. The most important of life’s criteria and its purpose are ignored because economists are unable to fit them into their calculations for measurement."

I believe the last sentence of that paragraph sums it up. This 'mechanism' is no more than a quasi-religion. And it's failing for two key reasons...

1) Blind adherance to 'a way atruth and a light' that is no more than a means by which one group of people might exploit the weknesses of one group of people to their detriment and the sole advantage of the exploiters.

2) The supply of mugs is drying up. They can no longer so easily get away with blackmailing or otherwise forcing great swathes of the population off to be culled in pointless wars. Effective enslavement is harder to achieve, even in developing countries... And the cost of that is mounting...

I don't think Marcus is quite right in his main assertion. The Economy, as was, is dying a natural death. And as much as there's an inevitability about that, there are more than retaillers engaging in the sort of 'monkey do management' that's seeing it off...

Across the entire business spectrum people in business need not only to grow a spine; but to develop some morals, some instinct, some real skill to replace the monkey business that is potentially leading us to a place where the death of the economy will be the least of our worries!

 

[Mike Lewis]

With all due respect Mike and not wishing to be antagonistic I have to ask...

And who sets these 'laws' and issues these dictats? ....Who built this mechanism? And how come the wheel bearings are rumbling and what does that noise indicate?

You're not being at all antagonistic, Matt. On the contrary, your reply is very helpful.

Perhaps I should have simply asked Marcus to explain his point in a bit clearly. He seems to be saying that retailers who agree to a customer's request for a discount are somehow damaging the economy. I simply don't understand the thinking behind that.

Mike

 

[Former Member 1]

He seems to be saying that retailers who agree to a customer's request for a discount are somehow damaging the economy. I simply don't understand the thinking behind that.

I suspect Marcus' post was made more to provoke debate than anything else. And certainly it's a broad link to make. A point I've made myself is that if you allow a market to be eroded beyond a certain point it does become unsustainable.

What, for instance is the price of a £3 pair of supermarket jeans?

Well it's £3 plus the cost of mitigating the human misary imposed on other countries; that's a tab that need to be picked up by relief agencies and charities, and contributed to by governments. Then there's the environmental impact; poisoned watercourses, scarce fuel wasted in transport etc... Closer to home you have the cost of supporting the now unemployed workers in (say) Irvine who once manufactured this product. And the cost of crime and disorder brought about by the households who have been disenfranchised thus. Then there's the cost to the NHS of people who's disenfranchised lifestyle takes them along unhealthy paths... Then there are the highstreets rendered wasteland because of this drive towards the so-called "perfect competition scenario"...

Further evidence to support Marcus' assertion can be found in the Farming and particularly the Dairy industries. Many farmers have been driven to the wall by the demands of supermarkets driving returns below the point of sustainability. And in many respects they are the authors of their own misfortune by not acting per masse to protect their industry...

 

[Marcus Cauchi]

Okay guys you rumbled me, I was provoking a wider discussion and the most obvious example of a bad discounting habit is the retail sector and the influence they have had on our beliefs as sellers which has been measurably harmful. My clients are hell because what they thought made them successful in the past isn't working so they've concluded that it wasn't what made them successful, in reality we find self sabotage, limiting beliefs and stock mentality did more harm to sales performance and profits than any bad economy, tradition “we've always done it this way” is another killer!

What are your thoughts on other self sabotaging behaviours and the habits that you see people keep repeating?

 

[Marcus Cauchi]

Apologies, I can't seem to find where to edit my post? I made a few typos previously.

Okay guys you rumbled me, I was provoking a wider discussion and the most obvious example of a bad discounting habit is the retail sector and the influence they have had on our beliefs as sellers which has been immeasurably harmful. My clients ask for help because what they thought made them successful in the past isn't working. So, they've concluded that it wasn't what "made them successful." In reality we find self sabotage, limiting beliefs and flock mentality do more harm to sales performance and profits than any bad economy. Tradition “we've always done it this way” is another killer!

What are your thoughts on other self sabotaging behaviours and the habits that you see people keep repeating?