The End of the China Price

When faced with significant economic pressure, American consumers and businesses tend to take action in a very predictable manner:

They do what’s in their own best interests.

Interestingly enough, that doesn’t always mean that they buy the products or services that cost the least. In fact, it is our prediction that in the months (and years) to come, a significant trend will emerge that will leave much of big business sailing off like the Titanic in the direction of the iceberg… unable to change course quickly enough.

The trend?

Buying on real value.

Real value is the opposite of the “China price.” Real value is what we look for when we realize that funds are severely limited, that the probability of increased spending power in the future is low, and that what we purchase today (or this quarter, or this fiscal year) needs to last.

Businesses that understand this trend have the opportunity to act purposefully now — before it gains steam. And it will gain steam. 2009 and 2010 will see significant increases in mortgage defaults and foreclosures, further pressuring the housing market. The global economic crisis will create significant instability in the global supply chain. This will threaten the low prices for the cheap, disposable, planned-obsolescence goods that are the bread and butter of big-box retailers. We’ve already seen this happen with Best Buy and Circuit City, where the goods are non-essentials. But it will move to Wal-Mart when we realize that the toys, household items, furniture — and yes, even clothing — that we purchase may need to last a lot longer than China intends them to last.

And the same thing will occur in the business-to-business world as well. Long term value will begin to outrank short-term utility and low cost.

This isn’t a short-term shift. This is going to be a fundamental swing of the pendulum. The old mentality: solve the problem as quick as possible with little regard for the future… and do it cheaply. This created the “China Price” and the credit boom. Remember your grandma and her shoebox full of cash? Remember how she wouldn’t part with money for anything? Watch for a modern version of it to arise.

What does it all add up to?

Significant opportunity for local, small business. Now is the time to ramp up value. Build products and services that provide significant long-term return on investment — even if it changes your ability to sell for the lowest price. Retrain your salespeople and refocus your marketing message to demonstrate long-term value. Don’t gloss over the immediate benefit, but make sure you’re justifying what you’re asking your customers to spend.

But don’t confuse this new way of thinking for some sort of gimmick. If necessary, go back to the drawing board and retool your products and services. The market is going to expose the charlatans and reward those who are authentically creating value. If you’re concerned that you’ve built your house on sand, now’s the time to find some valuable footing and pour concrete.

That, my friends, is the most valuable New Year’s Resolution your business can make.