Unironically. I’ve watched so many businesses fall into this trap.
Places used to make money on volume. That was the entire point of early McDonald’s. Extremely small menu served instantly. Low profit per customer, but constantly busy.
Now one of the biggest corpo metrics is “ARPU”, average revenue per user. And when they do raise prices the immediate effect is more profit, nearly every time.
People rarely look at the price and walk out. What’s more likely is that they just never come back again. Clearly management made a great change with the price increases; it must be something else driving customers away six months later. It takes time for high prices to hurt your business.
In the 90s you could get a bucket of chicken for about $10 and feed your family of five. Inflation calculator says that should be $21 now.
I used to go out for the day, and hit someplace for lunch. Now I eat lunch at home, and then go out. It’s not even that fast food is so expensive, it’s not even close to good any more.
It’s not a trap, it’s an intentional choice, and a very profitable one. Imagine you sell a lot of a product but costs make up 90% of revenue. Then you double the price and as a result sell half as much. Your costs stayed roughly the same, maybe went up a little. So now instead of making 10% profit, you are making 40-45% profit per item. Now imagine your sales declined by less than 50% and how much extra profit that would be.
Prior to the pandemic companies would be careful about raising prices. If they raised prices by 5% and lost 10% of sales, that was less profitable than not increasing the price. But the legit supply chain shortages during the pandemic made them realize that a larger subset of customers were willing to pay significantly higher prices than they thought, and they also realized they had less competition than they thought, and now everything costs double and we all just call it inflation, because that’s what inflation is. When the price of everything goes up at the same time.
It will continue until either there is nothing left of the upper middle class, or the upper middle class stops paying. The poor and lower middle class are already priced out, and companies do not care.
Corpo looks at this stat 2-4 weeks after they change prices. They don’t care to realize that the sales did decline more than that, it just takes longer.
Unironically. I’ve watched so many businesses fall into this trap.
Places used to make money on volume. That was the entire point of early McDonald’s. Extremely small menu served instantly. Low profit per customer, but constantly busy.
Now one of the biggest corpo metrics is “ARPU”, average revenue per user. And when they do raise prices the immediate effect is more profit, nearly every time.
People rarely look at the price and walk out. What’s more likely is that they just never come back again. Clearly management made a great change with the price increases; it must be something else driving customers away six months later. It takes time for high prices to hurt your business.
In the 90s you could get a bucket of chicken for about $10 and feed your family of five. Inflation calculator says that should be $21 now.
No wonder most of them are mostly empty.
I used to go out for the day, and hit someplace for lunch. Now I eat lunch at home, and then go out. It’s not even that fast food is so expensive, it’s not even close to good any more.
100% its the expense that drove me away. Part of it though is the expense went to the cost of an actual restaurant.
Also local restaurants are far superior for the same price or lower than chains.
It’s not a trap, it’s an intentional choice, and a very profitable one. Imagine you sell a lot of a product but costs make up 90% of revenue. Then you double the price and as a result sell half as much. Your costs stayed roughly the same, maybe went up a little. So now instead of making 10% profit, you are making 40-45% profit per item. Now imagine your sales declined by less than 50% and how much extra profit that would be.
Prior to the pandemic companies would be careful about raising prices. If they raised prices by 5% and lost 10% of sales, that was less profitable than not increasing the price. But the legit supply chain shortages during the pandemic made them realize that a larger subset of customers were willing to pay significantly higher prices than they thought, and they also realized they had less competition than they thought, and now everything costs double and we all just call it inflation, because that’s what inflation is. When the price of everything goes up at the same time.
It will continue until either there is nothing left of the upper middle class, or the upper middle class stops paying. The poor and lower middle class are already priced out, and companies do not care.
Corpo looks at this stat 2-4 weeks after they change prices. They don’t care to realize that the sales did decline more than that, it just takes longer.