Consumption Rules

Profits I can understand. Cheap profits I cannot. Profits are the normal mark-up on products or services that add value. For example, I recently rented a trailer to move stuff halfway across the country. I paid a fee (more than I would have liked) to use the trailer for a week or so, and it served its purpose in getting my stuff where I wanted it to go. It cost me less than buying a trailer myself, and I didn’t have to return it to the place I took it from, saving me a trip I would have had to make if I had borrowed it from a friend. In other words, this transaction added value because the company buys the fleet of trailers and assumes the risk and costs, but rents them out for a short time to people like me. Good capitalist transaction.

Cheap profits are money that a business takes in without adding any extra value. They leave a bad taste in everyone’s mouth except for the owner of the company who uses the money to buy mouthwash to wash away the aftertaste. For example, I went to buy a couch and loveseat to furnish my new place. They had a loveseat in stock, but no couch, so I paid for both and would pick up the couch when it came in. They called it a “price hold” because the set were on sale if bought together. Well we ended up changing our mind on the couch and decided to return it, or take it off price hold and get our money back. This of course required a fee of $5 that “they should have told [us] about when they put the price hold on.” Of course they didn’t tell us that detail originally. I consider this $5 fee a cheap profit because they, first of all, didn’t disclose it originally and let us opt in, and secondly because it doesn’t add any value. All of those services a store offers should be included in the price of the goods they sell. They didn’t do anything above-and-beyond for us, just took our money early for something we were going to have to pick up later.

In the short term, businesses can succeed and even thrive off of cheap profits. In the long term, I don’t think they can. Right now the cell phone industry’s profits are predominantly cheap - fees for everything you do with your phone it seems. In fact, I tried to go into a Verizon store to pick up a phone for my plan the other day - they don’t even carry free phones in the store any more, at least not in this one. A basic phone should always be included in the cost of the services, otherwise the service is useless. So I got the cheapest one I could - $80 with a $50 mail-in rebate (another form of cheap profits, usually), and a buy-one-get-three-free deal on it, so other people on the plan could get one if they wanted. There’s no question the cell phone industry takes advantage of the exuberant public demand for a scarce product and leverages it to make cheap profits above and beyond normal and fair profits (yes, there is such a thing).

In the long run, however, thankfully I don’t think cheap profits can persist. Competition does a relatively good job of squeezing cheap profits out of the market in the long run, unless government or other protection intervenes. In the meantime, I guess we’ll have to be stuck being reminded that “they should have told [us] about the fee when we signed up.”

Anything to close the sale, why not “anything” to keep the customer?

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This entry was posted on Saturday, September 29th, 2007 and is filed under Customer Service. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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