Supply and demand, it’s the basis upon which modern economics has been founded. The theory is simple, when demand is high and supply is low prices rise, but when supply is high and demand is low prices fall.
Our industry understands this theory very well indeed, for many years we had over production, too much product and too few customers, so we discounted, pre-registered and developed creative financing packages to stimulate the market.
As a consequence retail prices were rarely achieved and discounting commonplace. But as the recession bit ever deeper staff made redundant, investment was delayed and capacity reduced. Over production lessened and with supply and demand more evenly matched huge discounts became less plentiful.
As the recession drew to a close the customers returned to showrooms, discounting stabilised on many models and on some ‘in demand’ derivatives, evaporated altogether. Some dealers weren’t giving a penny off, everything was selling at full retail, the profits were super healthy and the customers were queueing up to buy.
And why not maximise your profit when times are good, why give even a penny off when you can sell the same car 5 times and get full list price? Why indeed?
It’s my birthday soon and by way of a celebration I’m going to a pub near Marlow called ‘The Hand and flowers’. I have to confess it’s a pretty special pub. It holds not one but two Michelin Stars. It is owned and run by Tom Kerridge and his wife Beth. You may have seen Tom on TV, he’s a big, tall man with a wonderfully smiley face and a rich West Country accent.
This will not be my first visit to the Hand and Flowers; in fact it is my favourite pub in the world and in my top two restaurants of all time. I’d eat there every day if I could. But to eat there at all takes some planning. A table for lunch requires a 4-6 month wait and a table for dinner can extend that wait to not far off a year. It is, to put it mildly, a very in demand pub.
With demand for tables so high, they can afford to charge what they like for food, after all if you won’t pay it, there are plenty of other people who will, right? Well according to our rules of supply and demand that’s right. So how expensive is it? Less than you might imagine, a three course set lunch is just £19.50 whilst exquisite tenderloin of pork for your Sunday lunch is a very reasonable £27.50.
Tom and Beth have decided that despite being arguably the best pub in the UK and having a waiting list that many restaurants would kill for, that they will keep their prices sensible.
Not only sensible but the last time I ate there I was astonished to receive a huge stack of whitebait, together with bread, butter, oil and olives with the ‘compliments of the chef’. Yes Gratis, Free, not a penny to pay! The generosity astonished me. Why, when demand is so strong and the resource so limited, would anyone charge less than they could for what they are selling? And secondly why on earth would they then ‘give something away’ for free?
It defies the laws of economics……but it explains the success of The Hand and Flowers.
Tom Kerridge isn’t interested in wringing every penny of profit out of his customers, instead he wants to build long terms relationships and loyalty. He understands that at some point in the future he may face more competition from other pubs or that when his career on TV has ended that fewer people may know about his pub.
Tom understands that relationships are more important than profit and that the best way to surprise and delight people is often through generosity. Tom didn’t need to ‘give’ the whitebait, olives, bread and butter away. But he did, and I appreciated it.
If Tom ran a dealership I suspect he’s continue to be the same as he is now. The cars would be priced fairly, and even the ones that were super in demand would come with a tank of fuel and a set of carpet mats. It would cost him some profit…….but I suspect that his customers would be happier and more loyal and that if and when another recession hit, he’d get through it unscathed.
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