Cartoon 729: Pulling the Wool

Since the Financial Crisis the consumer demographics have changed. First, the number of expansive consumers have shrunk because of the wide spread unemployment. The psychological effect of the Financial Crisis is people feel less secure. That insecurity translates in to less spending.

For years businesses have experienced a revolving door approach to their CEOs. Each executive heralded their arrival by championing cuts in expenses. In recent years they have exhausted this approach. They next turned to selling off key parts and acquisition and mergers. It works for short term appearances of profits.

The Financial Crisis has restricted the funding for mergers and acquisitions. The corporate executives find themselves trapped. The profit expectations of Wall Street continue as if there is no detrimental circumstances. All the “excessive” costs have already been driven out of the businesses. Their only option is to increase sales. That means enticing consumers to buy. The way to separate consumers from their wallets is make them think there is something they cannot do without or a deal approaching “the fantastic’. The reason some furniture stores every few months have a “losing lease” or bankruptcy sale is because it works. Consumers appear thinking they are going to get great buys. The fast food marketing is a combination of desire and great deal.

The other approach is make consumers pay more for less. The number of ounces is decreased while the product price remains the same. Another approach is to convince consumers they are getting their money’s worth with a greatly smaller supposedly “concentrated” size. Finally there is the “new model” approach. The goal is to make you think what you have is obsolete. The turn over in cell phones is a prime example.

Some businesses try to drive up sells by leaving the consumer’s current perception of the business behind. They do this with a name change and re-branding. An example is Comcast cable company changing its name to “XFinity”.

No matter what approach businesses use, one thing never changes, profit expectations. Any real deal for the consumer has an impact to profitability. Be judicious in shopping and watch out for rabid business models masquerading in sheep’s clothing.