Free trucks, free food: US businesses survive meltdownFebruary 12th, 2009 - 1:17 pm ICT by IANS
Washington, Feb 12 (DPA) Buy-one-get-one-free signs usually indicate a bargain in the cosmetics or grocery sections of supermarkets.
But in Davie, Florida, people were surprised to see that University Dodge, a local car dealer, advertised a free truck for anyone who purchased a new one.
Economists have a name for measures like this: desperation marketing. And it is growing in popularity in the US as the unemployment rate jumped to 7.6 percent and the economy shrivelled by 3.8 percent in the final quarter of 2008.
“Businesses now have to do something to differentiate from other businesses,” Barry Bosworth, economics expert at the Washington-based think-tank Brookings institution, said in a telephone interview.
“In recessions people just ignore normal advertisements,” he said.
To keep their old customers and gain new ones, companies have to be creative - like the breakfast chain Denny’s, which served a $6 breakfast free one day last week to an estimated two million people.
Restaurant chains are being hit especially hard by the year-old recession because many people went out less frequently for dinner than they used to.
“Forty or 50 percent of consumers are saying they’re eating out less than the year before. It’s a fight out there for the guests,” Denny’s spokesman John Dillon said in an interview. The free Grand Slam breakfast won a lot of attention, and Denny’s hopes many will come back again.
Some restaurants have taken the opposite way by cutting jobs to save money. In restaurant chains like T.G.I. Friday and Bob Evans, busboys have lost their jobs. Now, waitresses have to clear dishes and clean tables, leaving the restaurants looking in shambles at times.
Saving money by cutting service is a bad idea, Bosworth said. “Once you ruin your reputation with bad service, it takes a long time to restore it.”
Desperation marketing was a better idea, he noted. In the case of the estimated $5 million Denny’s spent on the free Grand Slam breakfast, that amount was just slightly more than the cost of a regular advertising campaign, and even more effective in improving Denny’s image, Bosworth said.
But small businesses often can’t afford the same measures as big ones can, Oliver Schlake, management professor at the University of Maryland, told DPA: “A lot of small businesses are now almost in the same position as start-up businesses.”
Especially if they offer more expensive items, they often have to change their business strategies to attract customers with less money in their pockets, Schlake said. Most people wouldn’t stop going out in general or stop shopping, but were more sensitive to how much something costs.
“They need new customers, a new staff and new ideas,” he said. This generally means reducing prices, giving a positive side-effect: many items that used to be overpriced are now more accessible.
Supermarket chains like Giant have adjusted to reduced demand by reducing prices, which has actually maintained the chain’s income because people are cooking more at home, Giant’s spokesman Jamie Miller said in a telephone interview.
To bring in even more customers, Giant is running a big campaign like Denny’s: from January until March, they are giving away free antibiotics for customers with a prescription.
“This is a way for us to tell customers that if they are prescribed antibiotics, we are a source to get them,” Miller said. So far, the campaign has been successful and a lot of people got the free medication, he said.
While ideas like this one and Denny’s free Grand Slam were likely to improve the image of a company, Bosworth was not so sure whether a deal like the buy-one-truck-get-one-free would do the same.
“It doesn’t make much sense, since most people don’t need two trucks at the same time. It makes more sense to offer lower prices,” he said.
Gorge Haimovich, the general manager of University Dodge in Davie, Florida, that offered the deal, said that his company did just that. If people came in and said they would rather buy one truck for less than two trucks for the price of one, they were offered the truck for as little as half the original price.
“We’re the only Dodge dealer in town that didn’t lose sales compared to last year,” he said.
The sales of the other dealers had dropped by 30 to 40 percent in 2008 compared to the year before.
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Tags: barry bosworth, bob evans, brookings institution, busboys, cutting service, davie florida, denny, free food, free signs, free trucks, grand slam breakfast, john dillon, local car dealer, recessions, restaurant chains, saving money, shambles, spokesman john, unemployment rate, waitresses