Clark Howard's Tips

Businesses challenged when looking to squeeze costs

May 2, 2008

If you're a business owner, you know that passing price increases to customers is difficult during touch economic times. Savvy shoppers may notice that Frito-Lay is reducing ounces and upping the price. Perhaps they're secretly trying to give you a hint about that diet you've been putting off?! Just kidding.

Gas stations are also squeezing costs in their own way. Some locations are offering cash discounts at the pump, which saves them the expense of processing credit card numbers. They can then pass a piece of those savings along to you. It costs a gas station about 10 or 12 cents per gallon to run your card. So it's really a win/win situation.

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The spiraling rate of inflation has led to economic dislocation. The government is reporting the inflation rate at around 4%, but Barron's says it's actually over 10%. There's political benefit in lying about the rate of inflation, and it also cheats Social Security recipients out of the proper inflation adjustment. But we see the inflation everyday when we go out.

Businesses are in real bind because they have rising costs at time when there's less demand. Just look at the airlines and their huge fuel bills. Southwest is the only one that made a meager profit. Continental is not merging with United because the latter loses $6-$7 million a day!

Yet the average person pays fares that are up only 3% over a year ago. Why? Demand is too soft for the airlines to charge any more. When push comes to shove, airlines may be willing to park planes in the desert. This will reduce the number of available seats and allow them to charge more money for fewer seats. Every business faces this kind of choice in a recession.

So you must be an educated consumer and cherry-pick the deals. Patient leisure travelers can do this when it comes to flying. Shoppers can do this by avoiding overpriced groceries until they go on sale. It's like a chess game and you've got to out-think the business owner who is trying to sell to you.

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