January 11, 2006
Low prices are like cholesterol
Good ones are a result of things like technological innovation, creative use of IT to improve operations and marketing, and a rethinking of the nature of the product and the processes used to make and ship it.
Bad low prices come from diminished product quality, and clever efforts to push a business’ real costs of operating off onto others: unpaid overtime, sweatshop labor, advertising hard-to-collect rebates, and corporate socialism (expecting government incentives to locate in their regions; expecting public welfare programs to keep employees healthy). Bad low prices are also a result of business decisions that are unsustainable economically (Independence Air pricing its seats at below the revenues its fuel-inefficient fleet of planes needed to pay for their gas; Detroit automakers' failing struggles to hold on to their customer base by teaching them to expect deep discounts).
Before buying something cheap, be sure to ask: why is it cheap? Were costs actually eliminated - or did they just migrate elsewhere?