The value of value

There was more bad news for businesses from today’s Consumer Sentiment Index. Those damned consumers simply won’t stop being sensible and are keeping their money in their saving accounts, or are paying off their oversized mortgages.

And the trend is unlikely to change. Indeed, the index dropped again this month, to its lowest point since June 2010, when we’d just been hammered by three consecutive rate rises.

Westpac’s chief economist, Bill Evans, says the result was lower than he expected. Consumers are worried about rising petrol prices, rising prices under the carbon tax and the state of household budgets.

Worried consumers keep their wallets shut, which gives business few options to try and win customers.

Discounting has been one tactic, but it’s simply not working. So what about something different?

In an age where many products have become commoditised, product life cycles have become shorter.

Buy it, use it, break it, buy another.

But I wonder if the cautious consumer is being put off by the cycle. Sure, they can buy goods at a big discount, but they don’t want to buy things that are only going to last for a short time.

Throughout the GFC there’s been a lot of talk about returning to “old-fashioned” values and habits – things like family board game nights, craft, growing your own vegetables.

Could consumer buying habits have gone a similar way? Instead of buying products they know won’t last, might consumers be looking for products that last for decades, rather than a few months?

Many of us will have parents who have pots and pans, dinner sets and even appliances that they had since they day they were married. These products were expensive at the time, but they were seen as an investment rather than a purchase.

This could be an angle that today’s SMEs could use to try and generate sales.

Instead of competing on price, emphasise long-term value and quality. Explain your product testing regime and get testimonials from long-term customers.

Instead of spending your profit margin on discounts, could you reinvest in extended warranties or servicing? Or offer free annual product inspections to keep people coming back.

This strategy won’t work for every business. But when discounting stops working, you’ve got to try something else.