Dennis Jaffe is professor of organisational systems and psychology at Saybrook University.
Dennis Jaffe argues against cutting costs:
During challenging market conditions, independent, closely-held family businesses, in line with most other businesses, will reassess their strategies to see where they can reduce costs. Some suggest that they should lower prices as part of a wider cost reduction strategy in order to gain market share to preserve their market presence and cash flow.
But that strategy flies in the face of a core value that defines the essence of many family businesses. Managing for the Long Run, the classic family business marketing research by Danny and Isabel Miller, notes that a family business sustains success over time by respecting and serving both its customers and employees, and adopting a long-term view.
While there may be ways to cut costs, it is well known that if you develop a reputation for being low-cost, you very quickly become stuck with it. A family business therefore should not compete on low price, but should instead focus on its values, its commitment to employees, customers and community, and the extra value of what it does, even in tough times.
That process is made easier for the closely-held family business that does not have to return profits every quarter. There are temporary ways to reduce costs without changing the pricing structure. If, as in many family businesses, the company has a collaborative relationship with its employees and suppliers, and is known for integrity, then it has the opportunity to call these groups together to collaborate on ways to reduce costs temporarily. The company feels a "family" connection to its employees, and will not sacrifice employees who have been committed to the family and the business for short-term benefit that only serves the family.
So they bring the challenge to the employees themselves. For example, some companies have convened internal councils that reduce costs by offering furloughs, cutting hours or working with suppliers for inventory reduction. These internal changes have allowed businesses to keep trading while retaining a reputation and strategy. JM Smucker, the US-based food products company, for example, submits all major decisions to the test of its values, and if they do not support their key values they are not done.
To show value in ways other than cost, family firms can develop value-added additions to their products. Some companies with a long-standing reputation for quality develop maintenance or service additions to their services. Other companies reward their customers with special opportunities that are relatively low in cost but build on loyalty and reputation already earned.
The SC Johnson Company, for example, presents itself as a "family company". It advertises the ways that they are focusing on their value of sustainability and environmental support in their products, which seems to resonate with customers even if they are not the lowest cost products. They trust the company to do the right thing, and are willing to pay a bit more for that dependability and trust.
A family business can also hold on to its customers and sustain itself without sacrificing cost or quality, by finding ways to serve the community and the environment.
Developing a reputation for social responsibility and community service, while not the cheapest alternative in the short term, can encourage a customer to pay a bit more for assured quality, and for a company that is an asset to the community. For a few pennies they don't want to lose a company that is a good corporate citizen.
By focusing on the benefits of the company as a community citizen, a family firm can again demonstrate value without cheapening itself. Guardian Services Inc, a US building maintenance company, committed itself to developing sustainable work processes and supporting green building. While not saving money in the short run, it offers a meaningful workplace to their employees and serves the community.
It is short sighted of a company to survive a financial crisis by cutting costs to compete in the short term. A family business has a unique status because of its long-term commitment, its flexibility and its collaborative and value-based nature, which in both the long and short term may offer a more powerful marketing advantage than being cheaper than the competition.
A customer who sees value and responsibility in a company may be willing to give more to make sure that the company they like and respect is around for at least another generation.
Selwyn Parker has been a journalist for 30 years writing for Time, Newsweek and International Business Week amongst others.
Selwyn Parker argues the case for selective price reduction:
There are many family businesses that have made a living out of cutting prices. In Europe, the Albrecht brothers have turned their ALDI supermarket chain into a byword for value. Their goal is simple: "to provide our customers with the products they buy regularly and ensure that those products are of the highest possible quality at guaranteed low prices."
Customers have flocked to their stores since they first opened in 1913 and given the Germany-based business revenues in the region of $30 billion, making it one of the biggest family companies in the world.
Over in the US, second-generation Marcy Syms took over as CEO of her family's discount retail chain SYMS Corp in January this year. The $242 million firm was one of the first discount clothing stores to offer cut-price men's clothing. The business is still known by the slogan first coined by Marcy's father Sy in 1974: "An educated customer is our best customer."
It is true that a sudden change of policy to discounting prices – a common tactic in hard times – can be difficult to shift once it is in motion and attaching a "50% off" sticker to a prestige, heritage product is not the ideal scenario. However, there are times when such a tactic is warranted on a short-term basis or when it is necessary for the very survival of a business.
What a firm can't do is nothing. That is, rely on the retained earnings that family firms typically accumulate and hope for the good times to roll again, especially so when the competition is reacting in a dynamic way.
The nature of a firm's sector is crucial in crisis pricing. Not even the world's most expensive product has been immune from the discounting trend. In a rare move, diamond giant De Beers, which is 40% owned by the Oppenheimer family, quietly started cutting prices last year, albeit judiciously.
"The programme [of discounting] applied only to goods which were slow or not moving at all, and where our stocks were getting significantly out of balance," managing director Gareth Penny told trade magazine Diamond Intelligence Briefs.
In a world awash with hotels of every kind, the depth of competition in this industry makes every kind of enhanced pricing practically obligatory. This is why family-owned hotel chain Marriott is offering all kinds of inducements in countries such as the UK and Ireland where disposable spending has plummeted.
These include offers of up to 30% discounts for advance bookings and, in the case of airport hotels, "park here, fly there" packages whereby a one night's stay also buys 15 days free parking plus transport to and from your flight. This is on top of the usual Marriott awards programme. Meanwhile there are even heavier discounts available at Marriott's top-end hotels, now a threatened species that once charged $1000 a night.
Often discounts are disguised as something else. Media mogul Rupert Murdoch has grown market share for his Sky TV brand internationally by adding on packages such as internet access, bigger movie and sport programming and low-cost, long-distance telephony. His newspaper empire is well used to price wars and cutting the cover price of his newspapers is a tactic he often relies on to gain market share quickly.
When reducing prices, it is important this is not seen to tarnish the brand. They must be done in a way that reflects well on the brand's heritage and narrative. This stricture applies in any market-retaining strategy including before the introduction of a new line or model, both of which provide a good excuse to clear out slow-moving stock. These should be communicated to the customer as a logical way of providing value that in no way jars with the emotion of the brand.
Ultimately, a discounting strategy should be designed to preserve the brand's power in the market place without prejudicing it. As many families have found out, it is a powerful tool if used correctly.