ETHICS, PROFITABILITY AND THE KARTING INDUSTRY [DARRELL SITARZ, E-KMI.COM]

POSTED ON: August 10, 2009

By Darrell Sitarz, Editor e-KMI.com

(Editor note: As the Spring selling season continues in earnest and with the world-wide enonomy as it is, it is important that we examine and understand the very reason we are in business: TO MAKE A PROFIT. In the Spring of 1995, (and again in 1998 and 2001), we ran an article addressing this very issue. The article proved to be one of the most widely read and praised articles to appear in KMI and on e-KMI. We have has many requests to re-run the article again, and are pleased to present it in its entirety.)

ethics1

According to the dictionary, ETHICS is a “system of conduct and principles practiced by a person or group”; or, “pertaining to the morals or principles of morality”; or, “pertaining to right and wrong conduct”.

In other words, ethics is conduct that is considered right, moral and proper by yourself, your peer group and society at large.

In regards to profitability in the karting industry, an attitude has developed over the years that the lowest price is the best price, and that a sale at any price is its own justification. For a lack of a better name, we’ll call it the “No Profit Attitude”. The basis for this attitude is that ONLY the lowest price is worthy of a buyer’s consideration.

This attitude implies that a dealer offering products for sale at any price higher than the lowest price available from any and all competitors is somehow taking advantage of, defrauding, cheating or otherwise unethically abusing his/her customers.

The “No Profit Attitude” is widespread and appears to be shared by customers, suppliers and sadly, by dealers.

This belief fails to recognize that the customer’s best interests are served by buying products from a dealer who is profitable not just at the time of sale, but well into the future. It erroneously confers legitimacy upon a customer’s need to make a wise buying decision, while simultaneously conferring illegitimacy upon a dealer’s need to make sufficient profit.

From an ethical standpoint, this attitude puts the customer on the offensive and the dealer on the defensive. It allows customers to regard themselves and their quest for the lowest price as being morally and ethically inferior.

You can sense this attitude in customers and hear it in their voices. How often have you heard, “I’m going to buy it where I can get the lowest price”?

Too many dealers are taken by this attitude. They are afraid to be regarded as “too high”. Too many dealers accept this erroneous implication. They act as if they are guilty of some terrible crime. This is an illogical, unethical attitude and is detrimental to the long-term interests of customers, suppliers, dealers, employees, the community and the industry.

This attitude is an outgrowth of the ruinous price cutting and marketing strategies by suppliers as they reacted to their own problems in the marketplace in the 1980’s. It was born out of uncertainty and chaos of the money crunch, collapsed markets, high interest rates, vast inventories, excess production capacity, bankruptcies, mergers, etc. that occurred at the time. It was fostered and given strength and credibility by desperate, shortsighted (although then probably necessary) solutions adopted by distributors and dealers as they struggled to survive and adapt to the short-term needs of a suddenly volatile environment.

The attitude was quickly seized upon and adopted by customers. Who developed and reinforced it, and raised it to an art form in what they perceived as their own self-interest. It was likewise reinforced and given credibility by truly desperate dealers who shamelessly sold their wares like streetwalkers running an auction.

Pricing was sold instead of features and benefits; price instead of product knowledge; price instead of the right product for the customer. If a customer recognized product deficiencies and hesitated, the price was further reduced by distributors and dealers alike in an endless downward spiral, completely destroying the credibility of honest ethical dealing.

Unfortunately, the ethical high ground of value was abandoned with a retreat into the unethical mire of a “sale at any price”. It is there where many in the karting industry find themselves today.

It is not surprising that many karting consumers have adopted this attitude, as well. Many of them make infrequent product purchases and perhaps lack the detailed knowledge that a dealer possesses. Because of this, they may lack the experience and capability of making a valid comparison based on value rather than price. They (the consumer) may not be aware, until too late, that there are other values worth considering. But no one takes the trouble to tell them.

Dealers found it easier to cut price - to meet or beat the price offered by competitors. When you fall in line with this strategy, you reinforce the erroneous perception that you can sell your product at any price you choose and still make a profit. You prove there is no bottom line - that the only reason for you to ask a higher price is that you are greedier. This is the customer’s perception.

It is the job of manufacturers, distributors and dealers to show the customer the error of this perception; to re-establish the credibility and to make certain that they not only deal ethically with the customer, but to make certain that the customer perceives a transaction as being ethical and in their own best interests.

To make certain that the customer receives full value for money spent is not the same as meting or beating the lowest price. The karting industry needs to understand this, and it is the industry’s responsibility to make sure customers understand this as well.

All customers are different. But there is one thing in common they understand and have experience with MONEY! They have to work hard for it; they never have enough of it; everything cost too much! This is their basis for their ready acceptance and zealous allegiance to the “low price” attitude.

Shamefully, many dealers have accepted the “No Profit Attitude” and have adopted a mindset that prevents them from asking for a sufficient profit in the first place. There are several reasons for this.

They are afraid of being too expensive and losing a sale. They would rather lose money than lose a sale. Some are afraid of offending a customer or being ridiculed for being too expensive. They are afraid of being thought of by a customer as unethical or of being made to feel deceitful.

The most common reasons, however, are cowardice and laziness. Given the current mindset, it take considerably less intestinal fortitude and effort to quote a cheaper price than to properly establish and defend the values involved in a higher price.

It is easier to go along with customers in their blind quest for the lowest price than it is to exercise the moral fiber and put forth the mental effort necessary to help customers understand the greater value your products and place of business have to offer.

In a nutshell, it is unethical to sell goods and services for less than they cost, including the full cost of overhead and a decent return on investment.

Implicit in this attitude that price is the only value involved, is the thought that it is foolish to spend one penny more than you have to. Taken to the extreme, this attitude implies that the honest merchant who is charging a little more money but giving a lot more value, is somehow cheating or exploiting customers, when nothing could be further from the truth.

This attitude tends to downplay differences in product, service, location, reputation, experience or any number of factors of real value to a customer. It disregards these differences and pretends to assume that all goods and services are created equal. It tries to ignore differences in specifications, quality, ease of use, convenience, dependability, availability, longevity, etc. — all of which contribute to long-term satisfaction and value to the user, and increase residual value.

Self-preservation is the first law of nature. No one will willingly act against his or her own perceived self-interests. Perception is the key. The karting industry needs to challenge and change the erroneous perceptions that are damaging the sales landscape. It needs to change the way the public, existing customers and possibly retailers perceive its role in the selling process. The manufacturers and distributors did what they thought was necessary to survive, as did kart dealers and customers. But at what cost?

WHAT PRICE SURVIVAL? If low prices and low profit were the result of the loss or moral and ethical values in the karting industry, then the price the industry has paid has truly been too high. The industry has survived, but it has lost its way in the process. It often forgets that ethics requires it to make a reasonable profit.

In accepting the “No Profit Attitude”, the karting industry is maneuvered into believing that products and services are unworthy of consumer’s and karter’s consideration on any basis other than lower price. However, the price paid for goods and services is not the only measure of value that the customer receives, nor is it even the best measure.

Consider how often the customer who compares only price ends up buying karts or equipment he/she thought was equal to what was quoted, but in fact, was not.

Consider the values of availability, timeliness of delivery or repair, prestige, satisfaction, peace of mind, comfort, convenience and safety.

Consider the value to the customer of proper set-up, adjustments and instruction in the safe and effective use of the product. Consider the value to the customer of proper parts inventory and a reliable service organization - both now and into the future.

Sellers should consider all these things and then take the time to help the customer consider them. The few extra dollars spent with a seller for all these extra values will be returned to the customers many times throughout the life of a product and beyond.

There is usually and quite logically, a greater cost attached to higher quality goods and services. But, there is also a greater valued attached to their ownership and use. There is the quality of performance, ease, speed, or economy. There is convenience, comfort, satisfaction, as well as durability, dependability and longevity.

More often than not, the sum of all these values is far greater than the difference in cost which so often seduces an unwary buyer. The person who spends more money usually receives more value for his/her money than the person who chooses lesser-priced goods. A phrase coined long ago, “Quality is remembered long after price is forgotten”, should be a guiding principle for business-people today.

A seller does customers a disservice and possibly acts unethically when he/she allows customers to passively buy the wrong products from the wrong sellers because of lower prices.

On the other hand, a sellers acts ethically when he/she tells customers sincerely, honestly and convincingly of the values they may be depriving themselves by blindly accepting just lower prices.

Consider for a moment, the ethics of allowing a customer to shop price alone and disregard all other forms of value.

Consider, as a seller, the satisfaction and extra value you are depriving the customer. The customer came to you seeking to make a purchase. You owe the customer your best effort and best advice. To give a customer anything less is wrong.

Consider the ethics of doing business at prices that do not allow a company to pay sufficient wages to attract and train and keep qualified help.

Consider the ethics of profits so low that the business fall further and further behind that of the customers being served.

Consider the ethics of being forced out of business by low profits and having to abandon customers and their purchases. Wouldn’t customers be better served by a seller who charges a little more and can remain in business, to care for the needs of customers, and to reinforce the value of the products sold?

It is the seller’s responsibility to make certain that customers perceive the seller as ethical. On the whole, there is a responsibility to customers, suppliers, employees, the community and the government.

The responsibility includes, but is not limited to: A seller owes his/her customers full value for money spent. The customer deserves value and satisfaction with purchases at the time of sale and into the future.

A seller owes suppliers good representation in the marketplace and customer satisfaction with their goods. A seller owes suppliers timely payments.

A seller owes employees good jobs at good wages and the chance to advance and improve themselves - the chance to be proud of their place of employment and of the job they perform.

A seller owes the community a prosperous, well-managed business that offers steady employment plus community pride and involvement.

A seller owes loved ones a decent living, secure future, a reasonable amount of time and a chance to carry on the business if they so desire.

A seller owes the government prompt payment of all taxes due and conformity to all laws and regulations.

All of these things are owed to all of these people and it’s profit that makes it possible.

To summarize, ethics do not require sellers to meet or beat the price of any and all competitors. Ethics do require that customers be given full value for the money they spend. They also require that a sufficient profit be made to fulfill the responsibilities to all parties that have a claim on the seller.

Every seller has a duty to make a profit!

In these times, with the karting industry going through a renaissance of sorts, dealers, distributors and manufacturers must find their way out of the unconscionable attitude that there must be a sale at any price, and recapture the ethical high ground of “value”.

Value, not price, needs to be estimated as the truest and best means for customers to get their money’s worth.

And customers, too, must realize that the karting industry is there to serve them and that each business is entitled to make an honest, ethical profit.


Read more of Darrell and his team’s material at http://e-kmi.com/index.cfm.


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