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Monday, December 31, 2007

Have You Seen this Bag of Bananas Pricing Solution?

When I used to work for Motorola years ago, people in several of the divisions that I used to work for would repeatedly say,

"Its cheaper to crush it than to sell it."

And the weird twisted truth was that on paper, it was cheaper to crush it than it was to sell it sometimes.  So much so that we shipped product over from China, sent it to a warehouse in Ft Worth Texas and ran teams of people on double shifts crushing electronics.

Sounds crazy right?

Well the sad reality was that it was cheaper to crush it despite our constant re-assessing of the situation trying to find a way to salvage the cost and turn it into a profit or at least a break even move.  Things kept raising the cost to ship those marginal products past the price point we could sell them, such as:

  • Freight Costs
  • Retailer Charge Back Costs
  • Price Protection Costs
  • COOP Percentages
  • Returns Costs or Allowances
  • Even Sales Commissions!

Some of these items were percentage level costs and some were flat dollar costs and with a product at the end of its life cycle, they could cost more than the product would sell for.  The total loss from these costs, less the revenue from sale would exceed the amount it would cost to pay someone to crush that stuff and send it to a landfill or recycling center (for the batteries and hard metals and things).

Well, the other day, I was at the store and noticed that they were selling three types of bananas

  1. Fresh bananas on the shelf where they normally are
  2. Slightly browning bananas mixed in with the fresh ones, but typically being ignored by consumers, because there are Fresh ones right there at the same price!
  3. and Bags of old bananas that look slightly the worse for wear over the previous 2 groups, but they are bagged and available at a fixed cost (not a per pound rate, but a fixed cost per bag so the consumer knows exactly how much they are spending) and they are available in quantities that are about 3 times what a consumer would normally buy.

I thought this was a great example of the grocery store getting creative to sell the bananas and avoid having to throw them out ( or crush them in the back or what ever they do with bad bananas at a grocery store).

To top off things, each of the paper bags had a recipe printed on it for home made banana bread using real bananas (not like the Betty Crocker banana bread that I am capable of making for an office pot luck.)

So the last couple weeks, I've been snacking on bananas like crazy.  I eat lots of them any way, trying to avoid things that are even worse for my diet like gummy bears and chocolate.  The thing is it took grocery stores maybe 20-30 years to find this solution.

It gives me hope that others in other industries might still stumble on ways to slice some more copper off the penny and safe some money as opposed to wasting it.

It may not work with 2 way radios (my nemesis, hell I even tried to give them to FEMA during hurricane Katrina but there were no takers).  But you never know, maybe someone will find the solution, whether its cell phones or flat panel TV's or home theater chairs or dog biscuits or excess Nintendo Wii's in 2009.



NOTE. My screwy spell check kept trying to replace bananas with bandanas when I wrote this article.  If you found a bandana in your banana, I apologize.  I have never purchased nor eaten bags of bandanas and do not plan to start.  My sympathy to whatever inventory manager out there that might be trying to move excess bandanas.