Have you heard what Kentucky Bourbon is doing? Apparently, they can’t keep up with their product demand, which means they’ve got a stand up product and some damn good marketing. But their solution is to reduce the amount of liquor used in their product. This will allow them to serve more customers and, assumingly, answer the growing global demand for their bourbon.
But I believe this is a prime example of a fulfillment disaster in the making. Here’s why…
Customer Fulfillment and the Law of Supply & Demand
When supply is down for a product or service and the demand is up, the price is supposed to go up. That’s how it works right? Unfortunately, some companies get lazy when they see a high customer demand and they start diluting the product or cheapening its value by cutting corners on fulfillment. They assume they can do this and still expect the same level of demand.
Their assumption is that the law of supply and demand only works on products which people need to survive. For example, demand for gasoline is up and you raise the price, people still have to buy it. So your profits won’t be reduced by people “quitting” the product.
But the same principle can apply for a luxury product or service because once people become accustomed to a luxury, they’re likely to treat is as a necessity. People who love Kentucky Bourbon and who spend money on it now aren’t going to stop buying it just because the price goes up.
In fact, they’re MORE likely to stop buying it if the company charges them the same price for a cheaper (or in this case, less intoxicating) version of the product. This happens because reducing the value of a product while charging the same price agitates customers more than raising its price would. It creates what Stephen MR Covey calls a “Trust tax.”
Trust is a big, BIG deal in customer fulfillment, especially in an economy driven by social media. A lot of companies miss this. They get their eyes locked on profits and assume that if they can cut cost on fulfillment that they’ll raise their profits, but not if you kill trust during the process of cutting costs. If you lose the trust of your customers, you’ll have a hell of a time earning it back.
Of course, it’s not always a good idea to just raise your rates because your “demand is too high.” Thankfully, there IS a way you can have the best of both worlds…
Increase Value to Justify an Increase in Price
Price increases can be a powerful fulfillment and customer service strategy, IF you justify the increase by doing something a little extra for the customers. For example, let’s assume Kentucky Bourbon DID decide to raise their prices to get their demand situation under control. Only, instead of charging more money for the same product, let’s assume they added value to it by enhancing the packaging or by awarding “Bourbon Bucks” to each customer for returning an unused bottle or just for making the purchase.
They could then secure a deal with a partner company so that the Bourbon Bucks could be used to purchase products in vertical markets. The partner company would then pay Kentucky Bourbon a commission for every sale that was made with Bourbon bucks and they’d create an entire new income stream.
Of course, adding this kind of value to their product would cost money. That’s why the price increase would need to make up for that…and then some. So maybe Kentucky Bourbon has been using a little too much of their own product, but I think their decision to decrease value is a bad move.
It’s going to cost them money in lost customer loyalty. Remember this the next time you’ve got a high demand for your product or service. Fulfillment is a strong part of your marketing strategy, and retaining customer trust is often more valuable than cutting cost.