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Dirty Profits – The Problems with Profit Maximization

May 13th, 2012 · No Comments · Ideas

Big Ideas:

  • Dirty profits are extorted out of consumers at moments when they have little alternative.
  • While most business pay lip service quality and customer service, their actions say otherwise.
  • Try giving more than you promise. The marketing benefits will out way the increased costs in the long run.

For the most part, capitalism and free markets do a pretty good job of keeping corporations in check. Charge too much money, fail to innovate or offer lousy service and someone else will take away your market share. The problem is that markets are not quite that free. As the economic crisis has proven, greed, corruption, government bailouts and a whole host of barriers interfere with the free flow of most markets. Those are all huge problems in their own rights, but I want to focus on smaller problems with individual firms.

Dirty Profits

There are far too many companies that, once they have a captive consumer, will try to gouge as much as they possibly can. It is not about creating value for the consumer, maximizing profits at all costs is clearly the priority.

I have stayed in nicer hotels that charge $30 per day for internet access, exorbitant rates for long distance calls and have mini bar prices that would embarrass Wall Street fraudsters. While at the same time I have stayed in $25 per day hotels that offer free internet, free bottled water and complimentary buffet breakfasts. How much good will is a hotel building by charging $30 per day for Internet access that costs them almost nothing?

Imagine the pleasant surprise if your $120 a night hotel, were to offer a couple of dollars of free snacks or had free Internet access. Wouldn’t that be a hotel you recommend to others?

How about the “convenience charge” that companies like TicketMaster charge you for booking online. They get away with this because of their monopoly on the ticket sales, but it’s not right.

Another company that annoys me is NetFlix. I love the on-demand movies and TV programs but when you cancel your subscription, the service cuts off immediately, not when the month you paid for ends. I suspect NetFlix has that policy just because they know some customers will forget to cancel and will automatically be billed another month. Why not provide the service for the full period customers have paid for? It is not that hard.

Then there are the discount airlines that have practically built a business model on dirty profits. Sure you get a great deal on the airfare but try to check in an additional bag at the airport, when you have no other alternative, and the total costs of your trip can more than double. They also know how to get you with the $4 bottles of water on flights that don’t serve food or beverages.

The Good Corporation

Most people expect to be cheated when dealing with any larger company and therefore are always on their guard. Does it have to be that way? Wouldn’t it be nice to be treated fairly and get what you pay for? How much goodwill would be created if customers were pleasantly surprised with extra service they didn’t expect?

Action Items

  • Is your business model based on misrepresenting your service and ripping off customers? Shame on you. Are your profits worth more than your trust and dignity? Stop cheating and deliver value instead.
  • Giving more doesn’t cost much. A couple of chocolate bars, two bags of chips and a couple of soft drinks might cost a hotel $3 or $4. If you are afraid of losing profits, raise your prices by a few dollars and still offer the ‘free’ bonuses. The extra surprise will most certainly provide more marketing value than the lost sales due to the marginally higher prices. Competing on price is a race to the bottom any way.
  • Focus on giving more, that is how you can charge and earn more. Apple, Inc. has the most expensive products and the highest profit margins in the industry. It can get away with this because of the fantastic service at its stores, beautiful designs, and the fact that they retain complete control of all hardware and software so the products work as promised. Apple has proven that consumers are willing to pay double for something they love and trust.

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