Vicious cycle

Sometimes, this could be how the business owners tend to react.

Let’s take a small business for example : a vegetarian economy rice stall at a food court
Let’s say other things remain constant such as taste and quality of food (still remain average), rent and fixed costs remain constant.

When business is not doing that well, the tauke will be tempted to charge more (add a 20 cents to RM1 here and there). The underlying reason, number of customer (volume) dwindle but still need to pay rent & fixed cost. Thus he’s charging each customer more to cover the fixed costs.
To illustrate : Fixed cost = RM2000 per month.
Number of customer = 500 per month (as compared to 1000 per month)
RM2000 / 500 customer = at least RM4 each customer no matter what (as compared to RM2 each customer)
Meaning, the 500 customer will have to cover at least the fixed cost of RM2000

When the tauke increase price unscrupulously like this, customer tend to avoid frequenting this stall.
As days goes by, the number of customers dwindle further …. And to save the business, the tauke will charge the remaining customer more.
The tauke may try to give lesser rice or use lower quality raw materials to cut cost. This will affect the business further.

Due to the lower volume, tauke cannot finish selling the food he cooked for a day. In order not to waste, he’ll keep and cook for the following and following day(s). This will lead to further customer reduction as customer can tell when food are not fresh and lower quality materials are used.

This vicious cycle will continue until one day when either party cannot stand anymore.
Why do I say either party?
It could be the tauke could no longer sustain his business to even cover his cost.
It could be the group of customer had no other choice but to frequent his stall … due to convenient or because the stall is one of its’ kind in the area (for eg. Vegetarian food)

This story was INSPIRED by a vegetarian economy rice stall in a food court near my office.