Many retail garden centers are feeling a bit anxious regarding the upcoming holiday season, and for good reason. Two recent independent surveys project a troublesome holiday outlook for retailers:

According to the National Retail Federation’s (NRF) 2008 Holiday Consumer Intentions and Actions Survey, conducted by BIGresearch, U.S. consumers plan to spend an average of $832.36 on holiday-related shopping, up a paltry 1.9 percent over last year’s $816.69. This represents the lowest increase in planned consumer spending since the survey began in 2002.

A recent Deloitte survey was a bit bleaker in its findings. Almost six in 10 consumers said they would reduce spending this holiday season. Shoppers plan to spend about $532 on gifts, down 6.5 percent from last year, and buy fewer items. Nearly seven in 10 consumers said they would wait for store sales, cut back on shopping trips to save gasoline and use more coupons.

So the obvious question is, how are garden centers going to react to this news, and what should be their mindset going into the season? I came across an article at BusinessWeek.com saying: “Call it a customer service Christmas. Consumers are expected to rein in spending this year, and the retail climate favors big box stores that can offer bargains. But because small retailers can’t win price wars, experts say independents need to leverage their biggest advantage over the chains: personal relationships with customers and the ability to deliver superior service. With some economists predicting one of the weakest Decembers since 1991, retailers that falter could face a cold winter.”

What does this mean for garden centers? Since retail firms in the green industry should never compete solely on price, they must differentiate their product and service offerings.

It is a well-proven fact that customers use five main attributes in making a decision about what products/services to buy, and from whom to buy them – quality, value, service, convenience and selection.

Examining Demand

We economists characterize demand by a concept called the price elasticity of demand, which measures the nature and degree of the relationship between changes in the quantity demanded of a good/service relative to changes in its price. An important relationship to understand is the one between elasticity and total revenue. The demand for a good/service is considered relatively inelastic when the quantity demanded does not change much with the price change. So when the price is raised, the total revenue of the firm increases, and vice versa.

What this effectively means is that green industry firms can actually raise their prices, and though they might sell fewer units [of the product they are selling or the service they are offering], total revenue for the firm still goes up.

Now I can already hear the objections: “If I raise my price, my customers are going to defect and buy from my competitors.” Let me provide my own testimonial regarding this common objection to raising price. Over the last few years, 100 percent of the green industry firms that I have convinced [after much prompting and counseling] to actually try this have experienced an increase in total firm revenue. Some even found that per-unit sales increased when they increased their prices, which tells me they were pricing their products way too low to begin with. Low prices tend to result in a low quality perception in the mind of the customer, and when you raise your prices, sometimes you can influence the price-quality connotation positively.

So let me offer this bit of encouragement. The current economic downturn, though severe, is a normal part of business cycles. We have had 11 recessions since 1948; that’s one every six years on average. My point? This is not the first downturn we have experienced, nor will it be the last. So take heart and put your best differentiation foot forward for your customers this holiday season.

Dr. Charlie Hall is the Ellison Chair in International Floriculture. See his blog for more information at ellisonchair.blogspot.com.