Big company suicide through cost cutting

By | 15th August 2017

Big company suicide through cost cutting

There is a danger in trying to increase your profit through cost-cutting – you may find that you cut the very things that made you have a successful business.

It’s something I’ve noticed with big businesses where their industries have new competitors, rather than focus on the quality and difference of their products – they instead just cut costs and by their own hand remove the reasons people had for choosing them to begin with.

Here are three examples:

Department store
When your business is chosen due to previously excellent customer service, cutting this means that consumers are more than likely to choose a competitor:

Range of items – while a store may list many goods on their website, if they do not actually hold them in their stores then the advantage is lost. Should items just be supplied by another party direct to the consumer, bypassing the store, then they are no different than any other dropshipper.

Delivery – if the store had their own delivery fleet, but replaced this with couriers then that is another reason to choose a different supplier. Particularly if the option of delivery to a local collection point is no longer free, and standard free delivery now takes many days. There are many alternative suppliers that will deliver next day for free, perhaps using their own in-house delivery team.

Prices – while claims may be made as to matching prices, all you need is a quick internet search now to find the lowest cost and best delivery or collection option for you. If the department store no longer has the item in a physical store then there is no advantage over an online retailer.

Customer service – this is a key point, one that you only find out when things go wrong. In the past the store may have prided itself on customer service. If you had a faulty laptop for example then they would either replace it immediately with the same model, give you a choice of alternative models or even just a refund. While now you might only be offered repair, which means that you are without your laptop for up to 6 weeks while it is sent perhaps to another country!

So while the company thought it was being clever in reducing costs, all they have done is remove all the reasons why you would choose them over a competitor.

A company that has built it s reputation over more than 100 years could find that it is damaged within a short period of time by cost-cutting.

Quality – if your top product is the reason why people choose you, then lowering the quality and using cheaper ingredients instead of the main product mean that people are likely to look elsewhere rather than put up with this.

Size – an increasing problem is the reduction in size rather than increase in price. It is ok to increase your price over time for a quality product. We have the hilarious situation where a product from a different manufacturer has destroyed their iconic product by removing half of the shape that made it unique.

Range – offering a large range of products to satisfy diverse consumers is what made the company different. While some ranges may be less profitable, cutting them damages the brand as people who for example looked forward to Xmas decorations find that they are not available.

Outsourcing – if you allow your name to be used on products that you haven’t made yourself, then you must be extra careful to ensure that they meet the high standards that you used to have. Buying a product with the company name on it, only to find out it is poor quality and ‘made under licence’ is likely to cause further brand damage.

Location – if the company is famous for its original production locations, then moving to another country causes further damage.

If a large airline keeps reducing the benefits, then it could find that it reaches a point where budget airlines are actually better than them.

Food and drinks – originally provided for free, and of a good quality, this is one of the things that differentiated the large airlines from the budget ones. Cutting them down until they no longer exist removes a reason why you would choose them.

Luggage – in the past the large airline would give free hold luggage, again another thing that differentiated them from the budget airlines. Now when you have to pay for hold luggage, another benefit is gone.

Customer service – again in the past, another difference was the excellent customer service where people would be taken to their destination quickly by alternate flights should any problems arise. Recent problems where people were left stranded without support show that this may have been a cut too far.

Business travellers – reducing the miles that are granted for the business man club mean that its value is almost worthless unless you are paying large amounts for fully flexible flights. At the desk you are kept waiting behind a long list of silly business membership titles before your own class is allowed. Whereas with a budget airline you pay a small amount and get priority boarding.

Seats – in the past one advantage of the big airline was allocated seating, however as you now have to pay for the seat choice there is no advantage over a budget airline.

Further drops in profit over the coming years aren’t likely to be caused by brexit, the economy, exchange rates, etc. as they may claim – rather by their own choices to cut costs.

To misquote Jack Carter:

You’re a big company, but you’re in bad shape. Not making silly decisions that destroy your brand should be a full-time job. Now behave yourself.

After building up 17 years experience in industry and practice, James started his own business from scratch in 2006.

He now helps others to do the same, while minimising both the risks and costs.

James is dual qualified in tax and accounts, and has won multiple awards for small business. In 2014 he was invited to Downing Street, as one of the Small Business Saturday 100 winners.

2 thoughts on “Big company suicide through cost cutting

  1. Miguel @ The Rich Miser

    Thought-provoking. As a consumer, I have seen customer service cost-cutting in that most companies nowadays seem to be outsourcing their customer service to third-party providers whose agents stick to rigid scripts. This means that, many times, you ask a question that gets a canned response that does not really address what you are asking. You keep trying, and keep getting canned responses that do not solve the problem. It’s infuriating and, at least in my case, has soured my views of more than one company.

    1. James McBrearty Post author

      Yes, there is a large opportunity for companies to beat their competitors by offering better service but sadly many follow others in trying to just cut costs.

      I’ve had a huge waste of time with one supposed good-quality department store recently, going around in circles quoting the same thing and not taking any action.

      Even emailing their managing director had no result – they just passed it to the people I was complaining about in customer services!


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