Wednesday, November 11, 2009

Five Dollar Economics

It is standard liberal dogma to believe that capitalists are greedy pigs who will squeeze consumers for every last cent just to make a profit. While some may be, the smarter ones know better.

Stuart Frankel is one of those smarter capitalists, and to boost sales at his Subway store in Miami he decided to give his customers a deal: a footlong sub for $5.

For Frankel, the biggest surprise from his $5 promotion was that his profit margins didn't decline. Many promotions are so-called loss leaders designed to draw customers in the hope they'll buy higher-margin items alongside the featured special. That's one reason most offers have a time limit. Frankel's food costs did rise as a percentage of sales, but that was offset by the overall boost in volume and the increased productivity of his employees, who had less down time. Even after adding two new staffers, Frankel made money on each $5 sandwich.

The free market responds to good deals, and rewards those who give them. Walmart is another great example of a business that exists to give people low prices, and they are now the largest retailer in America. Watch how fast Walmart spreads.

There is tremendous profit in saving consumers money. Markets must be kept as free as possible to allow this phenomenon to continue.

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