'Penny wise pound foolish' in Business

Charging a customer Rs. 20 as parking charges and as a result losing his business, probably forever, is classic 'penny wise pound foolish' business folly.

The classic flaw in this decision by Star Bazaar has occurred as a result of them looking at retail purchases from the 'transactional' angle and not the 'relationship' one. If a business concern were concerned about building relationships with customers, it would not evaluate a customer based on a purchase, but from the present value of all his possible future transactions. This radical change in mindset is the the genesis to CRM.

How can a company decide whether to charge or waive the costs of a service provided? The business firm needs to ask itself whether its customers would be willing to pay for that service if they were given an option of whether to pay for it, if they knew it was part of the shopping price. If they would likely refuse to pay if given the choice, or would take their business elsewhere to find another supplier who didn't have those costs, then that service is termed 'non-value-added'. Value added service on the other hand are services delivered by the seller incurring a cost that the customer is willing to pay for.

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