When is a bargain, not a bargain? When it’s too cheap. By Steve Jordan.

In these recessionary times it’s easy to screw suppliers to breaking point.  Indeed as your own margins get squeezed you could be forgiven for wanting to make every pound work as hard as possible. But there are limits … or there should be.

We all think we know the difference between price and value.  But, in my experience, few people actually do.  They think that buying good quality at cheap prices represents good value.  I don’t think so.  More like short-term opportunism born out of a fundamental misunderstanding of what makes people tick.

Everyone in the moving industry will tell you that you cannot give a top quality service at a rock-bottom price.  Not for long anyway. Anything that’s worth having must also be worth providing. If it’s not, it won’t be available for long.

Over my years in business I have seen some crazy policies when it comes to purchasing. I remember one large company who had a policy of selecting the best suppliers, screwing them into bankruptcy, and then buying them for a song. Not only is that immoral where I come from, it’s also bad business.  They thought they were being smart, but they were being stupid. Their actions demoralised the workforce and angered the management of the companies they bought.  They single-handedly turned profitable, dynamic, successful organisations into basket cases.  Needless to say, the company itself crashed in the 1980s.  Just deserts I say.

I know of another company that provided its customer with an excellent service for a reasonable price and had done for years. New management screwed down the price to the point where the excellent service was no longer possible. Frustrated, the company sacked its customer and set up in competition against it to do the job properly.  A competitor created where none existed before.  Brilliant!  I bet they’d all got MBAs and thought themselves the brightest stars in the sky.  Alan Sugar would have been proud of them.

A supplier to the moving industry I interviewed recently said that they were getting less for their products now than they were 12 years ago.  They were at breaking point. That can’t be right.

In many other cases long-term customers have exploited loyal suppliers to the point where they no longer cared about or no longer could supply the service on which the customer relied.  Bonkers!  And, during periods of austerity, all too common. Often it’s just done as some kind of mad commercial game and the players have no idea of the pain they cause or how quickly the demon will come back to bite them.

The Office of Fair Trading is a bastion of what is right and proper in business in the UK.  Some might have noticed that its logo represents a see-saw, a balance, signifying that good business is good for everyone.    

So, what can we do about it?  We are all consumers as well as suppliers.  We need to recognise that good service and top quality products need paying for.  People need to be paid well enough to do their jobs well and, more importantly, want to do them well.  So in 2012, why don’t we all do our bit, however small, to help.  Rather than screwing down our suppliers so that they can’t breathe, let’s all just stop short.  Give them a little leeway.  Pay just a little more that absolutely necessary.  The little you pay must, inevitably, come back into your pocket eventually as your customers do the same to you.  We’ll all just be a little richer.

If not, we will certainly stifle the drive, ambition and flair of those who create the wealth for us all.

Essential reading:  Atlas Shrugged, by Ayn Rand.  A long, fascinating novel that will change the way you think about business forever.

Comment

Have you been screwed by powerful customers? Or are you also guilty of pushing people further than is wise?  Let us know your thoughts.