Profits are being squeezed by more than just reduced revenues; it’s a new buying attitude.

As small business owners we all understand the concept of loss leaders and the high profit items. We have in the past provided stripped down items as a starter option, the basic package, with profit bearing add-ons available. The opening order with expansion opportunities in mind. The profit loaded onto the add-ons the upgrades the ‘better’ option, the top of the line.

In many cases, we have built our profitability on these concepts. It has worked for years as the customers immersed themselves in consumerism. In the spirit of buying more than they needed, spending more than they had, using credit lavishly and never really caring what it actually cost. This was a very profitable strategy.

This worked for years and fattened your profit picture. What are happening now is not only a huge contraction of gross revenue, but worse yet a huge contraction of net profit. Now the consumer is buying the stripped down models, the less profitable entry level option without the added bells and whistles. They are satisfied with the loss leader and leave without the options. They buy the sale item without adding onto it with more profitable purchases.

The tried and true loss leader concept is now no longer the rule. Without the add-on the gross revenue is deceptively higher while the net profit plummets. This is very dangerous and must be better understood as the consumers’ habits are changing and your marketing methods must also change if you are to stay viable and profitable.

This is happening at every level of the market place be it service providers or product sales, the consumer is getting very savvy and has less credit, as well as less desire to collect expensive merchandise or unnecessary services. Now they want value and carefully consider their purchases opting for what they need not what they want. Thus more lower level, less expensive computers are selling then full scale loaded computers, reducing margins dramatically yet satisfying the consumers’ needs.

Plan accordingly, the-add on attitude, the up sale, the cross over sale, the impulse buy, are concepts of the past. You must find a better way to market, a more profitable way, as this approach no longer works.

In fact maybe the secret remains as always, figure out what the consumer wants and give it to him, profitably. Maybe you need to learn how to sell the stripped down model, the basic package, the ‘loss leader’ at a profit, enough to make the business flourish.

If the loss leader is going to bring the customer in, then sell it profitably.