BETWEEN PRICE INCREASE AND QUALITY REDUCTION

Survival Strategies in Tough Times

In difficult times like this, with many economies of nations shrinking and inflation all over the world on the rise, it is a difficult time to be in business especially for business owners who need to make difficult decisions to survive and also scale.

With the increase in electricity tariff, increase in fuel prices, increased taxes and several other increases that will have a ripple effect on the cost of doing business in Nigeria. These increases have been postulated to have as much as 30% increase in the cost of doing business.

Who will bear the increases? certainly the increases will be borne by either the consumers or the business owners. In most cases the consumer and the business owners bear the increased cost of doing business. How to appropriately spread these extra cost is the tough decision to make to not just remain in business but also make profit.

The import of this blog is focused on shedding light on the best decisions to be taken in difficult times like this. Faced with the options of reducing quality or increasing price there is a decision for the business owner to make. I certainly do not envy those who will make the tough decisions. I want to help you with empirical evidence from some brands in Nigeria and how they have navigated through tough times to keep their share of the market and those who failed to make the tough decisions.

"To the victim adversity is bad. To the leader/warrior hard times are life's richest time of growth, opportunity and possibility. Use them to grow" Robin Sharma.

This blog was inspired by a picture from a popular sausage producer. The authenticity of the picture cannot be verified but from observations from the consumers we all can conclude that Gala is no longer the sausage with great taste and aroma that we fell in love with.

Your ability to make this decisions and how quick you make these decisions could determine the survival of your business. Quick decision making is one great skill to have as a business owner and making decisions should be based on facts.

Price Increase

Increasing your price due to increasing level of inflation which causes a resultant increase to your cost of production becomes a choice to remain in business. If you factor in the increase in your cost of doing business and it’s not what you can bear alone, the consumers will have to bear some of the cost which will be in the form of price increase.

Going for price increase why you maintain your quality will mean you may lose some of your clients. But overall you will keep your loyal customers who have come to accept your level of standard. Increasing your cost will ensure you are able to keep your quality level uncompromised.

In 2016 when Nigeria went into recession major FCMG increased their prices but keeping the quality of their products. This was done to survive the harsh business environment occasioned by the recession in the economy.

Rising costs for businesses could result in bigger production spending and falling profitability. Therefore, you could be forced to increase your prices. It’s much better to gradually increase your prices, rather than a sudden, larger increase as consumers could respond negatively. Raising prices slowly over time eases the consumer into a more expensive economy.

Quality/Quantity Reduction

Some businesses go for the option of reducing quality or quantity to survive tough economic realities. The popular scotched egg (egg roll) sold on the streets have gone through different stages. From full egg to half to only God knows what. They have chosen to reduce the size of egg within the egg roll to cope with economic realities.

Check the popular sausage roll the quality of beef within it has reduced and the taste and aroma is no more what we grew up to love. Their decision to keep prices unchanged and reduce quality has made other sausage producers to get a foothold of the market.

When the makers of Peak Milk saw the competition from Promasidor makers of Cowbell Milk in 1993 they had to wrestle with Promasidor by introducing a cheaper alternative to Peak Milk which is "Three Crown" to be able to compete favourably with Cowbell.

Conclusion

I will suggest you do what FrieslandCampina WAMCO did by creating an alternative. For those selling cakes increase your size a bit and increase the amount, then create a cheaper alternative for those who will go with the cheaper alternative. With this you have taken care of the two groups, those who are willing to pay more and those who are not willing to pay more.

Initially, branded milk was seen as a luxury, exclusive for the rich. The first to challenge Peak’s dominance was Promasidor’s Cowbell milk in 1993, which introduced powdered milk in smaller sachets. This gave average Nigerians access to branded milk. Promasidor’s effort also paid off significantly for a while, as Cowbell adopted “Our Milk” as a pay-off line.

In response to the threat from new brands led by Cowbell, Peak milk made a transition into packaging their products in smaller sachets, both in powdered form and evaporated. This response, in due time, allowed Peak to make in-roads into the homes of the lower class consumers in the country.

References

Small Business Big Money- Akin Alabi

https://nairametrics.com/2018/08/09/competing-milk-brands-in-the-country/

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