By: John Bee, Managing Director, White Space Strategy
A new doughnut shop’s opened in Oxford’s Westgate shopping centre. The doughnuts looked nice, and I was intrigued and hungry. Then I saw the prices: £4.50 for a single doughnut. £16 for four.
As you can see, there weren’t many takers. The shop assistant was so unoccupied she was playing with her smartphone:
Is this an advance warning of what’s to come? Not just for the expensive new doughnut shops, but for all of the other companies selling high price, high margin non-essential products – that customers can either do without or can buy elsewhere for less?
What are £4.50 doughnuts?
There are £4.50 doughnuts in every sector, B2B and B2C. They’re currently for sale in every country, everywhere.
£7 pints of Moretti; £800 family weekend family festival tickets, staying in a yurt; €80 Uber Eats meals; $70 per square foot to rent that office in New York – that you don’t really need anymore following the pandemic.
These doughnuts aren’t always obvious: the 2% typical charge on credit card transactions in the United States demonstrates this. Credit card fees are capped at 0.3% by the EU and in China typically stand at 0.1%. New payment methods are emerging in the US that by-pass the traditional credit card platforms and charge far lower fees.
Dirty doughnuts: will people want to eat them in 2023?
Will people and businesses be buying these products and services in 2023, when the cost of living crisis is hitting hard? If not, what will they be buying instead, from which companies?
I actually don’t think the answer is simple. As my 15 Forces Driving 2023 article explains, not everyone will be struggling. Some people will get good pay rises. Some businesses will win lucrative new contracts. By thinking about these 15 forces together, it’s possible to predict who the most and least pressurised customers will be.
With this mindset in place, take a look at these photos of products and prices, all taken in Oxford on the same day I was tempted by the doughnut. Which products do you think will sell well next year? Which will stay on the shelves (without heavy discounting)?
Trend Micro kids scooter: £122.95 in John Lewis
John Lewis own brand kids scooter: £25, reduced from £49
Kids rucksack: £40 in Smiggle
Jack & Jones jeans, £24.99 or less in TK Maxx
Beats by Dr Dre headphones: £239.99 in John Lewis
Radio controlled car, £16.99 in TK Maxx
Harry Potter Lego, £44.99 in John Lewis
Think again about customers, people, and how they’re likely to be affected next year.
Would you rather be John Lewis or TK Maxx?
Conclusion: what does this mean for market positioning and pricing strategy?
If my business bought £4.50 doughnuts during hard times, I’d be annoyed. If my business sold them, I’d be worried.
I’m not confident about the viability of many of these £4.50-doughnut businesses and brands that have prospered in recent years, able to succeed in relatively good economic times (or at least when furlough payments were hitting the bank and cheap credit was freely available). I would be concerned if I was an investor in one of these companies, or a creditor, and would be thinking hard about repositioning or limiting future losses.
These businesses, and others who are at similar risk, need to think hard about three things:
- Repositioning: can you create a lower cost, lower priced product/ service, that offers better value for money?
- Pricing: should you move to a new price point, or to a new pricing model (that’s more affordable to your customers)?
- Discounting: how much could you reduce prices by, whilst remaining profitable? What would trigger this, and how would you implement in practice?
For everyone else, there lies an opportunity: can you offer customers a comparable product at a significantly lower price, that meets roughly the same need? People will always eat doughnuts, maybe even more of them when times are tough. They’ll just buy them from Greggs.
To learn more about Doughnut Economics, read Lucy Cottee’s review of Kate Raworth’s book of the same name on Whiteboard. Raworth’s theory is a lot more encompassing than the analysis on this post, setting a broader framework for sustainable business activity.
About the author:
Managing Director, White Space Strategy
John founded White Space Strategy in 2005, and has worked on over 300 growth strategy projects worldwide.
White Space Strategy was named as one of the UK’s leading strategy and innovation consultancies by the Financial Times in 2021 and 2022.
He is currently also working with Oxford University within their UN Sustainable Development Goals Impact Lab, and has lectured at Warwick Business School.