Thursday, May 19, 2011

Search for Better Supplier Costs

Notice how gasoline prices rise as fast and directly as a rocket, but any price drops we see at the pump come down as slowly and unevenly as feathers?
     Economists have noticed it so thoroughly that they’ve given a name to the phenomenon: Rockets & Feathers. They’ve also found Rockets & Feathers to be widespread. Researchers at University of Chicago report it occurs in about two out of every three supplier-to-retailer and retailer-to-consumer product transactions. It also occurs with services such as banking: Deposit rates respond more quickly to an increase than to a decrease in money market rates.
     However, now expect fewer feathers in the retailer-to-consumer arena. When supplier-to retailer costs go down somewhere in the marketplace, smart retailers will be dropping their prices to shoppers more quickly than they’ve done in the past. This means that unless you find those lower supplier costs for what you sell, you’ll be losing business to your competitors.
     The reason for fewer feathers is improved consumer search strategies. The tight economy sharpened price sensitivity. Increasingly comprehensive search engines and databases allow shoppers to find the best prices. Mobile technologies let them do it while they’re in your store or browsing at the competition.
     Researchers at University of Illinois and Renmin University of China find that search strategies aren’t the same when prices increase as when prices go down. If a consumer sees a price on a familiar item go up, the consumer searches diligently to locate the best deal. This behavior enforces a direct connection between supplier costs and retailer prices.
     However, traditionally, when a consumer sees a price on an item that’s only a little less than what they paid before, they aren’t motivated to search for an even lower price. That’s resulted in the prices drifting downwards in the flight path of a feather. This habit is what’s changing.
     These days, retailers overall may be seeing increases in supplier costs. One major driver consists of the signs in many quarters that the economy is recovering—giving courage to suppliers to make up for profits they sacrificed during the Great Recession. You’ll be able to justify price increases to your shoppers by explaining that your supplier costs have climbed.
     However, stay alert for any price decreases in the supplier marketplace. Be sure you’re among the first to find those lower-cost suppliers so you can rocket into a competitive pricing scheme.

Click below for more:
Check Your Optimism When Dealing with Vendors
Prepare Customers for Price Increases

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