Volume 93 No. 10 - October 2022
Less is not always more. By now, we have all had a recent experience of paying higher prices for less products and services. If you have visited a restaurant, stayed at a hotel, or shopped at a grocery store, you have felt the effects of higher prices and smaller portions, with less service. Everything seems to cost more, but we’re getting less.
At restaurants, we may wait longer and receive smaller servings, if what we choose from the menu is even available at all. At hotels, services once taken for granted, like valet parking or an on-site sports bar, may close early or might not even be open at all. In the snack aisle at the grocery store, your favorite bag of potato chips contains fewer chips than before. When businesses are asked for an explanation of the reasons for less service, common answers include the pandemic, inflation, or shortages of people and supplies. While all those reasons are true in varying degrees, paying more for less can leave us walking away disappointed.
The costs of higher prices for lesser services are not only measured in customer frustrations, consumer actions are also affected. Recent studies have shown more than three of every five (61%) consumers would switch to a new brand if they had just one bad experience with a company.[1]
A Persistent Problem
In previous newsletters, we have explored the reasons behind these disappointments. Last month, The Investment Letter studied the labor shortage by taking a deeper look at the causes of all the “help wanted” postings we have seen long past the height of the pandemic as businesses still struggle to find workers.
The Investment Letter has looked at inflation and its drivers, including the insidious effects that the rising prices of commodities, such as oil, have on goods throughout our supply chains.
We examined labor shortages and rising inflation last year too, in October 2021 and November 2021, respectively. Now in October of 2022, the lack of workers, increasing input costs, and supply chain shortages are not new problems. To consumers, getting less for more is not a new problem either.
Navigating a New Competitive Landscape
We have all heard excuses and have commiserated through the low points of this generation-defining moment in our towns, states, and nation. However, at some point when we stand in line, waiting for a smaller submarine sandwich after having paid a higher price, we begin to look for solutions, for better outcomes. We begin to look for providers of goods and services who solve today’s problems.
This collective desire creates opportunities for businesses that can deliver the goods and services that people want—not those that add to the list of complaints we have all been carrying around.
For much of the pandemic, that hasn’t always been the case. Take car dealerships, for example. In a business where demand has far outstripped supply, many dealerships have not needed to cater to car buyers who have come through the door over the past two years. Many have had very limited inventory. Simply put, if the dealership expected a string of buyers to come through their doors for the small inventory of cars they had on the lot, letting one buyer leave so they could sell a car at better terms to the next, helped their business by producing higher revenues and by stoking demand, at least in the short term.
Customer service has suffered—and it shows. The ACSI, the American Customer Service Index, sunk[2] to its lowest level in 17 years last quarter. Less than adequate levels of service are starting to influence customer behavior. Consumers are growing fed up with accepting less while paying more. They have started to seek providers who promise more—and then deliver.
What Does This Have to Do with Investing?
As investors, we seek to identify the companies that are poised to succeed in this new competitive environment—those that can deliver the service that consumers so fervently want.
Understanding—and acting upon—customer needs and wants is good business, says business consulting firm, Bain and Company. For example, in financial services, increasing customer service by 5% can lead to a more than 25% growth in profits, says the Boston-based management consulting firm.[3]
We often talk about our approved stock list and the values and fundamentals that we evaluate when determining which companies stay, enter, or leave that list. To these criteria, we have added an assessment of these companies’ ability to meet the challenges of our high-inflation, low-supply economy. Put more simply, what solution do they offer to consumers in our new economic environment? Companies with strong brand and pricing power are poised to navigate this environment.
We Are Boosting Service
In an economy where many levels of service have declined, we have maintained consistency of our level of service, and have even added to our capabilities. Our merger with LaFleur & Godfrey has expanded our support and operations staff and increased the depth of our investment team. In addition, earlier this year we added Aaron Ritsema, CFP® to our team. To his role, Aaron brings nearly twenty years of investment and financial planning experience to our clients. While our business remains grounded in investment management, this added service of financial planning allows us to offer our clients a wider range of offerings in building and managing investment portfolios.
We recognize that the companies able to meet consumer demands and preferences will be the ones who emerge victorious in our new economy. This is reflected in our approved stock list and in the way we structure and run our own business. We believe this is the way to grow market share in the future—and we want to be one of the businesses that will succeed—the kind of business we would put on our own approved stock list.
[1] https://cx-trends-report-2022.zendesk.com/opportunity [2] https://www.theacsi.org/the-acsi-difference/us-overall-customer-satisfaction/ [3] https://media.bain.com/Images/BB_Prescription_cutting_costs.pdf
Investment Counsel Inc., a Division of LaFleur & Godfrey, is a registered investment adviser. Registration does not imply government endorsement or that the advisor has attained a level of skill or training. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. *This newsletter was offered by our predecessor, Investment Counsel, Inc. from 1929 to 2021.