Uncensored2008
Libertarian Radical
You know what does not make sense to me?
you improve the supply the price goes down
the price goes down, profit goes down
What kind of idiot would believe that?
An idiot without a semblance of understanding of market economics.
I have my students study what is called "The Taco Bell Case."
To summarize, In 1988, Pepsi Cola was about to close the Taco Bell franchise as unprofitable. At the time, Pepsi was charging $0.89 for a regular taco and the same for a regular, bean burrito.
In a last ditch effort, the marketing department decided to run a Sunday special with taco's and bean burritos at $0.29. The argument was that even if Taco Bell took a loss per piece on the tacos, incremental sales of drinks and other items would make up for the difference and turn the chain around.
What happened was nothing short of astounding. Not only did the plan work, but Taco Bell was actually making a profit on the $.29 items. See, there biggest issue was overhead absorption, not food cost. By moving more product, they cut scrap (bad food) to almost nothing and cut overhead from 419% to 60%. Taco Bell then restructured their entire menu at sharply reduced prices and the chain was profitable within a year. Three years later, Pepsi was able to sell the chain (Along with KFC and Pizza Hut) to Yum foods at a huge profit.
The key to being profitable was lowering prices, VOLUME rather than margin was the key.
Price goes down, profit goes up - basic economics.