It’s Not the Nickel

Seth Godin (Seth’s Blog) points out that when Ikea recently started charging five cents for their shopping bags, consumption dropped 50%.  Are Ikea’s customers so destitute that they can’t afford a nickel?  Surely not.  So, what happened.

As Seth points out, when you charge for something you force the customer to make a choice.  If you include it in the price, there’s no choice required.  McDonald’s knows this.  "I’ll have a number 4, please" is just so easy, much easier than ordering each item separately.

If Ikea’s goal was to cut down on shopping bag usage, they succeeded.  If their goal was to turn the bags into a profit center, then they failed badly.  Raising the price of every item by five cents and giving the bags away "free" might have gone unnoticed and would have had the advantage of selling a bag to every customer, whether they wanted it or not.

Most retailers instinctively understand the concept of "value added."  If not, study the automobile industry.  They’re experts at it.  You add to the customer’s perceived value of the offering by the retail price of the additional item(s) while your cost increases only by the wholesale amount, increasing the profit accordingly.  What a concept!

No phone, no lights, no motorcar……

Remember Gilligan’s Island?  I’m not going on a three hour cruise to a desert island, but your intrepid blogger will be hanging out with the Trappist monks in Kentucky next week.  They do have lights but they don’t have internet access and cell phone reception is iffy.  But, thanks to the magic of modern software, MYOB will right here every day, just like you’re used to.  Next week is pre-blogged, if there is such a word.  The posts are done and will be posted automatically.  The only thing that will be different is that if you send us an email, it won’t get answered until October 15.

Have a great weekend and a great week!


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