Tuesday, 31 May 2011

Easy Way Out

 

Amid rising costs, increasing competition, and Wall Street's myopic focus on short-term profitability, many firms are fine-tuning business models. But instead of figuring out ways of giving more for less, a growing number of them are taking the easy way out. A key component of today's remarkably short-sighted "'value' proposition": deceiving and cheating customers. Here are four articles that highlight the "strategies" corporate America is increasingly relying on:

1. Lower quality

"Shopping 'Til the Quality Drops" (CNBC)

Lauren Parra prefers to spend more money buying quality items that will last more than two or three seasons.

These days it's getting harder and harder.

"I have noticed a shift in the quality of items. For instance, I noticed that Loft and Gap items look/feel like they'll fall apart—clothes aren't soft anymore," said Parra.

Parra, who likes to shop at Ann Taylor, Urban Outfitters and Rue La La, is not imagining anything.

Quality at many retailers seems to be hanging on by a thread.

According to Global Hunter Securities Macro and Consumer Strategist Richard Hastings, retailers have been collaborating with their production contractors for about two years. They are trying to push back on the total volume, cost and weight of every unit.

"Along the way, the consumer barely noticed. By now, everybody knows something is wrong," said Hastings. "If we had to put a number on it, it's probably a 7.5% decline in total quality and durability of products compared to a bigger increase in the cost of production per unit made outside of the U.S."

2. Deceptive packaging

"Inflation Diet: Same Price, Less Product" (MarketWatch)

Commentary: For cash-strapped consumers, it’s ‘caveat emptor’ on aisle 3

Economists are worried not only about inflation, but also deflation, and now it appears U.S. consumers need to worry too.

While prices for many goods are rising, in cases where prices are steady, the packaging frequently is smaller. It’s an unmistakable trend for grocery shoppers these days: every other package seemingly has a “great new look” for the “same great price.”

The problem is that the new look is a few ounces smaller than the old packaging. Or there has been some other creative way to have shoppers pay the same money as always without recognizing that they are bringing less home.

Barring a change in the way packaging is regulated, consumers need to change habits — or at least be more attentive — in order to make their dollars go farther and minimize the effects of this cost-inflation/product-deflation cycle.
Pinching inches

It’s been particularly noticeable to me of late because my family recently switched from our preferred grocery store to a nearby competitor. With the change, we noticed that it felt like our dollars were buying less and less.

Retail prices in the two stores are roughly the same, but we were buying less. For instance, a “half-gallon” container of orange juice from Tropicana is actually 59 ounces; a roll of toilet paper is shorter, the “new-look” salad dressing is four ounces smaller, and so on.

3. Unavoidable surcharges

"Airline Fees: The $500 Surprise" (CNNMoney)

Thinking of spending a weekend in Paris this spring? Think again.

The cost of travel to Europe has increased exponentially, mostly due to surcharges and fees which can add $500 or more to the price of round-trip airfare.

With the price of oil surging, travelers to Paris and other European cities will pay an extra $420 as a fuel surcharge, according to BestFares.com. Taxes and other fees can add another $100 or more.

For domestic travel, the cost of fuel is often lumped in to the base ticket price, although fuel surcharges are occasionally added on as well. Still, they are much higher on international travel partly because of the long haul.

4. Excessive and unwarranted fees

"Big Banks Hit Customers with Higher Fees, and More of Them" (USA Today)

The nation's biggest banks are increasing many of their fees, adding new ones, eliminating debit card rewards programs and making it harder for customers to avoid paying monthly charges for checking accounts.

At Chase Bank, fees have increased for overdraft transfers, outgoing wire transfers and stopped payments. New customers that sign up for a basic checking account face a $12 monthly charge, up from $6.

Experts warn consumers to expect more of these and other moves by large banks to boost revenue. "Services that used to be free will not be free," said Greg McBride, senior financial analyst at Bankrate.com, a financial information publisher. "There is very definitely a pocketbook impact on consumers."

Banks say they don't want to raise fees but they are losing revenue from new regulations."You are going to see a lot of creativity and innovation to recoup revenue losses," said Carol Kaplan, an American Bankers Association spokeswoman.


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