Labor Day 2013 – Fair Pay and Pricing: What Your Customers Want

“It is to the real advantage of every producer, every manufacturer and every merchant to cooperate in the improvement of working conditions, because the best customer of American industry is the well-paid worker.” — Franklin D. Roosevelt

Last year to mark the Labor Day holiday, I wrote a post celebrating the crowdSPRING team and their personal and professional accomplishments. We’ve had a few changes in the year since, with some folks moving on while we welcomed some newbies into the fold. They all contribute to the company in ways large and small and their talents and skills are always worth recognizing.

This year I wanted to give some thought to a story that is currently in the news and that deserves to be noticed by managers and owners, particularly of small businesses and startups. This summer has seen a growing wave of protests across the US by fast food workers and their allies. These folks are insisting that they be paid a fair and living wage for the work they perform. The average fast food worker in the US earns around $9/hour, with many earning as little as $7.40. The workers are asking for their wages to increase to an average of $15 per hour, allowing them to earn a living wage, pay their bills, avoid food stamps and other government assistance and to be given the recognition and respect that all workers deserve. Is that really a lot to ask?

The associations representing restaurant owners are up in arms. They argue that $15 is more than twice the federal minimum wage and that having to pay workers that much will force them to cut jobs, close their businesses, automate tasks performed by people, and in general ruin the industry. This response, completely out of balance with a simple request for a raise by a group of historically undervalued and underpaid employees, is fairly typical of industry trade groups: protect profits at all costs, even when it means some exploitation may be involved. The fast food industry was built on a simple model: keep costs low enough such that the companies can enjoy healthy profit margins while indulging American’s love of cheap fast food.

The question, as it is for any industry, is just how much customers will be willing to pay for a product they clearly desire. Different companies address this question in different ways and each might offer a different value proposition, designed to protect margins, while delivering what the customer wants. For instance, shoes are a widely available product that consumers can shop for in a variety of ways. For instance I can go to my local Foot Locker store and buy the most current model of Nike men’s Air Max Body U for around $79. Alternately, I can log onto my Zappos VIP account  and buy the same shoe on sale for $86. The difference is in the two companies value propositions: Footlocker is available right now at my local mall; al I have to do is hop in the car drive over and spend the hour or so it will take me to make the trip, find the store, try on the shoes, have the clerk ring me up, and head to the local playground to try them out. Zappos offers me a different value: from the comfort of my laptop, I can buy the shoes in 5 or 10 minutes, with about 6 or 7 clicks of the mouse and they will be delivered to my door tomorrow at no additional charge. For a busy person trying to manage a business and a personal life I might be more than happy to pay the extra $7 and wait a day before I hit the courts to throw down with my new kicks. My choice, my value, my priorities and it works the same across all industries when it comes to finding customers and selling products and services.

The fast food industry is no different than the shoe business. It’s just that the value proposition (cheap food, delivered hot, at a convenient location) is predicated on someone else’s pain (i.e. sub-standard wages for hard work). A recent analysis by a business student at  University of Kansas School of Business determined that if the average wage of McDonald’s workers went up to the requested $15 per hour, the cost of a Big Mac would increase by 68 cents. While this analysis might not take into account certain aspects of supply and demand (for instance how many fewer Big Macs would be sold at the higher price?), it is still a powerful illustration of how a nominal increase in the cost to the consumer can make a huge difference in the lives of a labor force. In addition, with constant complaints about poor service customers often receive at fast food outlets a hourly wage of $15 would be certain to attract better applicants for those jobs and increase the overall competency of the fast food workforce.

McDonalds and the other fast food purveyors run great businesses and deserve to protect their profits in the best interest of their shareholders, but could they not look to their pricing and their value propositions in order to protect profits instead of doing so on the backs of hard working people? My question is about customer’s price elasticity and how they perceive the value offered: would you be willing to pay the extra 68¢ for your tasty burger such that the person you see sweating over the fryer back there can pay their bills? I would.

Photo – “Fight for 15 strike day one Chicago” Steve Rhodes