Protecting Your Profit Margins – More Pricing Strategies

It has often been said that there are two fools in each market. One charges too little. The other charges too much. So where is the middle ground? How can a dealer compete with the discounters, still maintain profit margins, and in fact, come out on top? As we discussed in our last article, pricing strategies are the key. Develop price credibility rather than just slashing price.

Packaged pricing strategies and applying lead-item pricing brings customers in your door and influences your customers to look for value in the complete package, not just the low price advertised at ABC Discounter. As I mentioned, we all have to face the price war game, but businesses don’t have to give into discount defeat if we learn to use more key pricing strategies like buying incentive (nonlinear pricing), price bundling, and creating a buying environment. In addition, knowing how to price correctly is imperative.

The independent business owner who, for example,says to his customer, “With the purchase of this copier I can give you a savings rate of 50% on your first purchase of toner,” has accomplished two important goals. This strategy allows a dealer to give “incentive” to buy more without giving away the store. It is similar to the “first pair at full price, second pair at half price” strategy. In fact, many people shop some stores just because that is their well-known and advertised pricing strategy. Giving reasonable savings on the desirable and necessary accessories items while preserving the margin on the big ticket unit opens the door for more sales and increased profit.

Price bundling is another great strategy. A parquet flooring purchase may include a new throw rug. The purchase of a new microwave includes a set of serving dishes. A new bicycle purchase includes a helmet.

A word of caution is wise at this point. The savvy business owner must know how to develop a pricing structure that includes profit. Without knowing how to do this, many owners can be their own worst enemy in the price war battle. They get trapped trying to offer lower prices than their competitors in order to get business. What they don’t know is that very same competitor might be losing money. Remember, we are value merchants, not discount merchants. Margin must be based on an accurate picture of your business structure, not just what you perceive, in a moment of price war panic, the competition is charging. Generally, margins are wider on accessory items or service, not on your core units. For example in the auto industry, the margin on the car is far less than the margin on the service. So why don’t you give a service package to capture customers for your business? Check your pricing structures. If you have a 15% margin on your core products, and a 35% margin on accessories, give the break on the accessories. Following is a brief profit margin grid you will find helpful.

To make a profit of:

10% . . . . multiply by . . . . 1.11
15% . . . . multiply by . . . . 1.17
20% . . . . multiply by . . . . 1.25
25% . . . . multiply by . . . . 1.33

More than one business has folded because owners didn’t understand how to build profit margin into their pricing structure.

Another pricing strategy that is not as tangible as incentive buying or price bundling, but is equally as effective is creating a buying environment. It takes special skill to develop an atmosphere where your customer is less cognizant of the price and more cognizant of the value and the experience. For example, a top-notch business I walk into may actually have color TV monitors showing people enjoying the product or service being offered! There needs to be an event atmosphere in the buying environment. It’s much easier to close the sale when a customer feels as if he almost experienced the satisfaction of owning the item right there in your store! This is a value building technique but is truly a pricing strategy as well. A typical customer is willing to spend more in an environment that takes him to where he is going to use the product. If I, as an upscale bicycle dealer, have an area behind my store where my customers can actually try the bicycle, price will become less significant. How often have people been drawn by the aroma of fresh baked bread and then can’t resist buying the bread machine? Its not a matter of tricking people, it’s a matter of creating the environment. If I walk into a recreational dealer and the whole environment is flat, what have I got to go on except price? Yet, if I am greeted by the images of a family having a lot of fun on the road in an RV, price suddenly is not the only motivating factor.

However, pricing strategies alone will not do the job of saving your profit margins. It’s not enough to merchandise a pricing strategy, your staff must be able to dialogue the value to the customer. How do you define service that is packaged with the sale? Call it your “Gold Tag Service” and define that you are going to give the two complimentary service checks with the purchase of a new car.

Clearly, strong and accurate pricing strategies combined with tangible definition is key to building a successful future. Its always easier to maintain profit margins by giving the customer the option of buying more through value incentive instead of buying down just to get the discount!

You can find more of Winninger’s business strategies in his dealer-focused books: Price Wars ($24.95) and Hiring Smart ($15).  You can contact the Winninger Institute at (800) 899-8971; e-mail at twinninger@aol.com; or visit our website.

Pricing Strategies That Make Sense

Low pricing is not a strategy! May I repeat? It is not strategy to discount price and give up your margins. Value pricing is a strategy and one you can count on to bring you business and continued success in the price war battle.

There are a number of ways to price and in my opinion, bold-faced discounting is not one of them! Too many independent retail photography businesses are giving into the pressure of discount pricing and end up losing the battle when, if they applied some solid pricing strategies, they could retain loyal customers and gain new ones who shop for value and not price alone.

I understand we all must at one time or another, face the issue of discounts and competitive pricing but it does not need to be at the sacrifice of the profit margin. Two solid strategies that can aid you if you find yourself in a price wars game are:

#1. Package Pricing
#2. Value Pricing

Our focus here is on Package Pricing. Package Pricing uses a tactic called “lead item pricing”. This involves pricing an item comparable with the discounter in your market and then offering your customers “package pricing” when they get in the door. So in other words, if I am pricing a digital camera at $999.00 because ABC Discounts down the street has it priced at $999.00 as well, I want to make absolutely sure that the item I am pricing is something for which they will want to immediately add items. This does not mean selling accessories to add on to the price, or the next time they come in, but showing them the way to have the other items they will need right away at one price.

How do I accomplish that? I merchandise a like item right next to the “lead price” item but it is “packaged priced” at $1499.00. Most customers will choose the “discount” item, right? Not necessarily! If I do my job right, I will show them that for $500.00 more they can get so much more VALUE, the price difference disappears. I have highlighted the packaged priced items, put spotlights on the package and gave it more attractive signage. My customer thinks, “Wow, for only $500 more look at all I get!” Customers see value, not price. You don’t give them the opportunity to just “think” about the options they would like to have; you package them together so they perceive they “must” have them and can get them all at one easy, value priced package. It’s what we call, “price point perception”. The $999.00 item gets their attention, but value does its job, rises to the surface and gets you the larger sale and the added profit margins.

If you can “package” your photographic products or services together for a great value, the first time purchaser is far more likely to walk out of your business without ever giving the discounted single item a second thought. After all, you’ve made the price difference pale in comparison to the value. Although I discourage discount pricing, if you find yourself in the market with discounters, “price point perception” can work for you. Customers must not perceive that you are so expensive they won’t even check with you to see what you offer. The strategy is this: pick out an item that you can effectively promote that has a price point comparison with the idea in mind that your customers will never buy that one anyway. They will buy the packaged one, but you have won the opportunity to get them in the door. The rest of the job is up to you.

The second level, or Part B of Package Pricing is to do away with the “lead item” and present your customers with the $1499.00 package right up front. The key here is that you have to be very good at this. You must be able to identify for them what they are getting for that price. In this pricing structure you are “selling the difference.” The customer must be able to easily identify or answer for himself what he is getting for $500.00. Ideally, he should be able to get 3 times the value compared to the price. So for $500.00 in “price” he should perceive at least $1500.00 in “value”. Value cannot equal price. Value perception must exceed price reality. In doing so, you can effectively give your customer true value and still maintain important margins.

For example, a retailer may offer a camera at $395.00 that a big-box store sells for $295.00. The customer must be able to clearly answer, “What am I getting for $100.00 more?” If the retailer uses package pricing the customer will go home with film, carrying case, cleaning supplies or accessories and a gift certificate to use at the photography section of the local Barnes and Noble or similar type bookstore. He doesn’t even have to show a lower priced item and then try to sell up, the savvy retailer just packages the value and sells it right up front! Despite today’s competitive discount price wars, package pricing is a very valid and successful strategy.

Winninger is the author of two popular independent retailer-focused books: Price Wars ($24.95) and Hiring Smart ($15.00). You can contact the Winninger Institute at (800) 899-8971; e-mail at thomas@winninger.com; or visit our website

The Key To Loyal Customers – Products and Services With VALUE!

Stand on Price Alone and You Will Fail

What is value? Simply put; it’s whatever your customers think it is. More specifically; it’s convenience; service; quality; variety; knowledge; after-sale follow-up; and price. Value is the human factor. It’s what you can add to your product or service that will draw customers in and keep them coming back. Let me give you an example of what value isn’t. I recently returned from a flight to discover that my car; which I had left at the airport; had a flat tire. I called a servicing tire dealer and explained that I wanted him to pick up my car; install a new set of tires; and deliver the car to my home no later than 8 a.m. the next day.

After a few seconds of silence; he said; “We don’t do that.”
“You don’t do what?” I asked.
“We don’t pick up cars; and we don’t deliver them;” he said. “Are you a member of Triple A?”
“Yes;” I responded.
“Call Triple A and have them bring us the car;” he said. “Then we’ll call you when it’s finished; and you can pick it up.”

I don’t think this tire dealer understood me. I hadn’t even asked the price of the tires. I wasn’t buying the tires; I was buying the service.
This kind of non-service will drive customers away and into the hands of mass merchandisers from whom; I might add; I can buy tires very similar to those servicing dealers sell.

The man I had dealt with has probably been glaring at full-page tire ads run by mass merchandisers while he is going out of business because he thinks he can’t compete. He doesn’t realize that his business is not “selling tires.” His business is “service” and what he does for the customer while he sells the tires. What makes your products or services worth the difference in price to the consumer? The answer should be value. If you make price stand alone, you will fail- Stress the difference between price and value. It is critical that you define the value of your product or service to the customer and be as specific as possible. What is the value she receives for the money she pays? Do you deliver? Do you provide the freshest merchandise? Do you provide technical assistance by well-trained people?

You can’t beat the price merchant by lowering prices. You can only win by redefining the value you bring to the customer.

Factoid: Value is more important than price.

Tactoids:

1. Convenience: Do whatever you can to make it easy for the customer to do business with you. Take orders by FAX; conduct business at the customer’s location, offer a 24-hour phone service, deliver the product.

2. Quality: Make sure your product or service stands up against the competition.

3. Service: One of the most effective ways to differentiate yourself from your competitors is with responsive service that’s even better than customers expect.

4. Variety: Offer customers a diverse selection of products of services, then let them select those that best suit their needs.

5. Knowledge: The more you know what others need, the more valuable you are. Identify yourself as a specialist. Offer seminars or write a book. Know your products or services better than anyone else.

6. After-sale follow-up: Do something so unique after a customer transaction that it immediately identifies you as a premium value merchant. A grocery store chain assigns names of regular customers to each of its cashiers, who then call to thank them for their business. The Mayo Clinic encourages its physicians to spend at least one hour with each patient during an exit interview to prepare the patient to return home.

 

Thomas Winninger – 612 896 1900 – Thomas@winninger.com – www.winninger.com

Tipping Points

What is a tipping point, or what some people refer to as a turning point? What made it happen? What were the characteristics that set it apart? I am reading a fascinating book about A.C. Gibson, the founder and inventor of the erector set. I am reading the book because over the holidays I happened to catch a television special related to boys toys that was entitled “The Man Who Saved Christmas.” Isn’t it interesting that the show about A.C. Gibson and the erector set was on television at the same time that book appeared on the bookstore shelves? That is a question for our next session.

Tipping point is when something so significant happens that the future direction of activity is significantly enhanced. It might be person that you meet in your life that changes your life forever and you are smart enough to take advantage of the opportunity and not let it pass by. A.C. Gibson had invented this wonderful kit of parts similar to the steel girders used in constructing a building. As a matter of fact, he was actually in the magic business, creating magic tricks and selling them under a company called Mystic. He was riding the train from Connecticut to New York when he looked up and was fascinated with the way that steel workers were assembling the structure of steel to support the building. Going home that evening he sat with pencil and paper and drew out the components for a toy that would give kids the opportunity to build things with motors and parts that were similar to those structures.

He produced the erector set and put it in a big box. It weighed a ton. Actually about 150 pounds but as games go, that relativity is a ton. He could not sell it. One night his wife, pregnant with their child, was thinking about the toy that A.C. had invented. The realization came to her that the reason no one was buying it was because they couldn’t see it because it was in a box.

As the story goes, she woke him up and said, “Take it out of the box. Set it up in the toy store. Let people see how fascinating it is when it works.” He did as she said and the rest of the story is that A.C. Gibson Company became the number one toy company of its time and went on to create other creative toys for kids. They claim that their engineering, construction, and scientific career were based upon their experiences with toys made by the A.C. Gibson Company. This man received over 30,000 letters a month from kids.

The point of the story is not in his success, but in the thing that changed the future direction of the company: the tipping point. Every business and career has it. Unfortunately, sometimes it gets passed by. Sometimes we don’t recognize it as an opportunity. In my business we always say, “we hope the book gets legs.” We hope that it gets its own energy, similar to the energy of the book “Who Moved My Cheese.” This book had its turning point when a major United States corporation read the book, found that it was applicable to their people, and ordered thousands of copies. All of a sudden, the book started getting the recognition that it deserved. It is now selling over 12 million copies and is one of the most successful titles of business books of all time. A simple little book, less than 120 pages, that everybody can relate to because somebody has moved everybody’s cheese.

The tipping point. How do you identify tipping points? Well, again it can be an idea, a person, a connection, or a significant uniqueness that sets you apart from everything else. Ask the question, how can this circumstance, person, situation, or skill significantly affect the outcome of what I am doing?
There was a wonderful book called, “If it ain’t broke, break it.” This book says that sometimes we need to turn the corner in order to create the turning point. We need to put on a parachute and jump out of the airplane. We need to seek out someone who can see it differently than we do. But it is always important to ask the question about what the turning point is so that we can create a model for ourselves.

Thomas Winninger – 612 896 1900 – Thomas@winninger.com – www.winninger.com

Key Business Technique – Develop A Market Intelligence System

Quality Information Yields Quality Decisions

Do you have products sitting in your business waiting for customers to come in to purchase, or do you have customers that come to you wanting to buy your products and services? In today’s price competitive environment, the successful business will be customer driven rather than product driven. They develop their product line and service menu first by testing them in the marketplace and then developing and broadening only as their information or intelligence system applies.

A Market Intelligence System employs various methods of collecting valuable data or information that enables you to forecast the direction of your market. The key is to be sure you are gathering quality information. Truly, the quality of information that you gather will dictate the quality and success of your decisions over time. Businesses do not fail because they don’t have good ideas; they fail because they make poor decisions based on a lack of information. A Market Intelligence System that is tailored to the size of your business helps you fulfill customers’ needs because it identifies their profiles, purchasing habits and motives and their wants and needs.

PRIMARY AND SECONDARY DATA
Starting a Market Intelligence System does not need to be difficult or expensive. The most important initial information that you need is primary data and that consists of names and addresses of your customers. Those can be obtained from customer checks or by having the customer fill out an information card and they are given a membership to your “Shoppers Club”. Primary data also includes what is purchased, how much, how often, when and specifically by whom. The source for this data comes right out of your cash register/computer system. Primary data is the basis for your Market Intelligence System.

Secondary data is the next level of information necessary for an effective system and comes from a variety of sources. Sales associates should be talking to each and every customer that comes into your business. Perish the thought that your sales team would merely be asking, “Can I help you?” It is so easy to gather information with open ended questions such as, “Will this be your first purchase or are you seeking to upgrade your current model?” or “Where do you think you will use this product most often?” to “What have you purchased previously and from whom?” Over time the information garnered from these types of questions will be valuable to your decisions regarding future inventories. Advisory boards and focus groups also are critical to providing the information you need.

IDENTIFY WHAT YOU WANT TO KNOW
Collecting data is important but knowing what you want from it and how you want to apply it is equally important to a successful Market Intelligence System. You must develop specific objective for the data you are collecting. Ultimately you want to own your customers’ buying cycle. How can you do that if you don’t possess the information that helps you determine buying motives? Are you collecting information based on customer wants and needs? Do you track inbound inquiry calls? When you have a customer call asking about an item that he says he’s not ready to buy yet, but will be soon, is that not critical information? Are you tracking the frequency of purchases and the average dollar amount? Granted, large ticket items are not purchased with the frequency of clothing or groceries, but frequent requests for a particular model or item may very well impact your inventory purchase decisions and influence critical changes in your product lines to serve premium customers. Customers who purchase an item above a certain dollar amount should automatically be given a “Be Back Coupon” and a personal thank you note.

If you are not retrieving information from a database that tracks timing on service for a piece of equipment, how can you tell your customer when to buy a new one? There comes a point when a discerning business owner will tell his customer that the purchase of a new piece of equipment will cost less than the continued service on an older model. That is putting a Market Intelligence System to work for you!

Is your database matching customer profiles with purchases? For example, if you notice that a customer or customers in a particular profile typically buys a certain item, and they start purchasing another item, are you offering that item to other customers with the same profile? It sounds complicated, but there are numerous inexpensive software systems that help. I personally recommend a client management system called ACT! It has a wide range of options that allow you to manage your database, establish callback schedules and maintain customer profiles.

I see too many business owners that think a Market Intelligence System consists merely of weekly cash reports. They can’t tell me what their best day was with a particular item over the last six weeks or what people are asking for when they call on the phone. The outstanding owner will know the answers to those questions because his Market Intelligence System has given him the data. It goes back to the quality of information you are gathering with each transaction or inquiry. The key to a successful Market Intelligence System is timely collection of relevant information and processing it quickly so it can be used to support your entire operation. It will help you shift your focus from merely what’s selling to who’s buying.

You can find more of Winninger’s business strategies in his dealer-focused books: Price Wars ($24.95) and Hiring Smart ($15). You can contact the Winninger Institute at (800) 899-8971; e-mail at twinninger@aol.com; or visit our website.

Great Products or Great Costumers – How To Segment Your Market!

Business owners are faced with a variety of ways we can “sell the program”, meaning how we can focus on the process of getting our product or service into the hands of our clients, rather than the product or service itself. Concentrating on the benefits and how the product fits to the lifestyle of the user is “selling the program”.

Another way to sell the program is to focus on how our clients purchase. Americans are in love with their credit cards and a simple, hassle-free credit program will go a long way to selling the program at your business. Every day more and more people are stepping onto the information highway and making purchases through the Internet. Is your business up and running on the Web?

Another way value added merchants can sell the program is to provide service after the sale. This ties in perfectly with our focus in this article. Not every customer wants to be treated the same way. The huge amount of discretionary spending available in America today has caused us to get lazy. I see far too many independent business owners respond to this phenomenon by just putting more products on the floor. More products for more customers. Surely this will result in more sales, right? Perhaps for a short time, but in the long run, you will find that strategy will do nothing except sabotage your Maximum Value Perception and keep you from getting full price. What happens when the customers go away? You’ll be left with a lot of great products. I would much rather create a bank of great customers who will continue to come to me season after season, for all their purchase needs not just for products. To do this and to continue to build MVP, it is critical for us to know how to customize the Point of Transaction based on customer demand.

POINT OF TRANSACTION
The Point of Transaction deals with how your customer wants to do business with you. The environment of your business; the actual purchase system; the knowledge and support; and post transaction support are all factors that are perceived quite differently by different clients. You see it all the time on the car lots. Some people want to kick a dozen sets of tires, check under the hood, test the seats and nearly perform surgery before buying a car. Others know what color and style they want – if you have it – it’s a done deal.

CUSTOMER SEGMENTS
This incredibly strong market economy of today means a myriad of more people actually becoming customers. It is critical for the leading business owners to know how to segment their products and services to the different customer categories. Selling the Program in the almost any industry is vastly different than it was as little as five years ago. Not only are there countless more numbers of purchasers, there are countless numbers of more products to purchase. The offerings in the boating industry for example, include cheap small, expensive small, midsize, premium midsize, big and VERY BIG! Pleasure boating, once reserved for the wealthy is now accessible to a much wider array of people.

This rapidly expanding economy of ours can make segmentation quite complex. Adding to the challenge is the fact that the United States will become a non-majority country in which no single ethnic group will compose more than 50 percent of the population in the next 15 years. And within market segments there exists yet more sub- segments. For example, within heads of households, age 35- 50; white males may not be the only category. This group may now include single, college educated females as well. Obviously, all customers are not equal, differing in age, race, income, geographic location and sex. I still find that many businesses still fall short of properly targeting their goods and services to the different categories of customer demands. I find businesses whom spend a lot of time and money on large groups of customers who couldn’t care less about additional benefits in buying from their store, office or dealership. Not being able to discern the difference in these market segments will drain profits and eventually be losers for your bottom line. There are those who will come in your doors looking only for the fastest, sleekest looking boat you can show them. They care little about your Gold Label Service, they just want it BIG and they want it FAST. We must understand as well that there are overlaps in any segment and not everyone will fit exclusively in only one category. The Point of Transaction will not be exactly the same for each customer. My work has taught me that the best strategy for analyzing your customers within market segments and locating your premium customers is to place them into one of three categories: relationship, choice, or transaction. We will look first at recognizing a great relationship customer. In identifying relationship customers you will know the amount of demand and potential loyalty they have for your product and services. These are people who have the highest level of intensity and want service, information, and support after the sale. They will come in to look at a SUV for their family. They will look to your to help them determine which selection best fits their lifestyle. They will want you to have it delivered to their front door. They will want seasonal check-ups and want you to schedule it for them. They will spend more with you in the years to come. They recognize your MVP and are willing to pay full price for it. Relationship customers are premium – keep them the closest to you.

Thomas J. Winninger, CSP, CPAE, and member of the Speaker Hall of Fame is the president of Winninger Institute for Brand Strategy. Over 70 major companies in North America depend on him to assist them in maintaining their market dominance. The new millennium has seen the release of his newest book “Full Price!”. He is also the best selling author of “Price Wars” and “Sell Easy”. Contact the Winninger Institute at (612) 896-1900. E-mail: thomas@winninger.com; or visit our website

Don’t Use a Term If You Can’t Define It

I recently walked into an electronics retailer. They really sell a lot more than electronics, but that is their main niche. They are known all over the United States and have been very successful both from a service and a stock value standpoint. They have grown excessively in these past few years. Their international headquarters were actually just completed four blocks from my office. Their name is Best Buy.

Dick Scholtz, the founder of the company, is not only a successful businessman but also a role model to be emulated. He is one who believes that terms without definition are not actionable. In other words, don’t say you give great service if you can’t define what service is. Don’t tell me that you are Best Buy, if you can’t define it. Don’t tell me that you have great value if you can’t define what value means. Don’t tell me you’re a good friend, if can’t define what a good friend is. This involves defining it in terms of my value, not yours. Don’t tell me you’re a great father or partner, if you haven’t defined those either. For truly in the definition is the value you bring.

If your business has a great product and you haven’t defined it in terms of the highest need of your best customer then you are wasting time even talking about growing your business. If you are trying to be everything to everybody, and haven’t defined the differentiating needs of different customers you seek to serve, you won’t be successful.

If Domino’s is in the pizza delivery business, and did not define pizza delivery as within 30 minutes or it’s free, they wouldn’t be the leader in the pizza business today. Can you define your term? Can you make the definition so clear that everyone is attracted to what that means? Don’t use a term without a definition. The definition is the reason that people are attracted to your product, service, or talent. If you are a financial planner and have not defined what that means to the highest need of your best client then it will be very hard for you to be successful. The definition of the term is what makes it applicable, not the actual term.

Thomas Winninger – 612 896 1900 – Thomas@winninger.com – www.winninger.com

Build Customer Relationships!

Don’t Compare Price! Build A Competitive Comparison Grid

The relationship with a customer doesn’t end with the sale. The purchase of an item or use of your service should be the beginning of a long-term relationship with your customer. After the purchase, the relationship must be grounded in not only the quality of the product but also in the strength of your service and response to customer needs. How do you gauge and evaluate your quality of product, service and response beyond the price tag?

The successful business owner will start by building a Competitive Comparison Grid. Evaluate your products and services and compare them with those of your competitors. It is not only what you sell, but also how you sell and supply that counts. Customers may want the latest, top of the line model, but what will bring them back long after the transaction is completed will be your follow through service and response to their needs and wants. A Competitive Comparison Grid can help you internally evaluate what it is that you do best in comparison with your competitors. Use the relationship you build with your customers to define and build your grid. How and on what do we compare? Start by defining what it is you provide as a value merchant vs. a price merchant. Of course value merchants don’t compare price alone, right? We define ourselves not only by the products we offer but by service as well. Value is service! A specialty store client of mine once told me that value is always “one notch above its price point.” Service is whatever your customers think it is and expect of you. Therefore you must know your customers very well and the comparison grid is an excellent means of evaluating how you are meeting and exceeding expectations.

There are numerous ways a business can build a comparison grid.

• Institute a Customer Service Index
Identify the types of service you should be giving and rate each type in terms of the needs of your dealership. Marriott Hotels initiated a similar procedure with its Guest Service Index, a list of specific services that were rated according to the quality of service a guest received. This is invaluable to front-line people because it enables them to focus on customer satisfaction. Ask yourself, “On what do I want my staff to be judged? Are they knowledgeable and responsive? Do they look for opportunities to serve? Do they take pride in their personal appearance and that of the business?” You can formulate the comparison questions to fit your own business.
• Adopt a Customer Satisfaction Verification Program
Value merchants take the time to make a follow-up call to customers to ask if their expectations were met or exceeded by the value and delivery of the product. When staying at a Westin hotel I was contacted by the Guest Relations Director shortly after checking into my room. She was calling to make sure I was satisfied with everything in the room and to check if I needed anything else. Is your staff making follow-up calls to see how satisfactory was the first use of your product? Do they call to see if there are any questions they can answer or give advice?
• Sell Your Strengths To Customers
Don’t create an awareness among consumers that you have a competitor. Rather than competing on price when a customer may press you to compare with a price merchant, you may say, “Our product, with its extended warranty, is guaranteed to operate at peak performance for the time that you own it.” Note that nothing was said about the competitor’s warranty or price, doing so will only encourage comparison with another company and its products and services. Don’t defend price – define value!
• Build a Frequent Shopper Program
When times get tough, don’t lower price just to get the business. Instead, give your customer “equivalency points” to use to purchase other items or to obtain a discount after reaching a certain accumulated amount of purchases. Several clothing stores I know of “award” customers with points to purchase merchandise at regular retail prices at special intervals. Recently I was in San Diego and shopped at a California based grocery chain called Ralph’s. Customers receive a coupon printed on their receipt that is good for points accumulated towards the purchase of certain items in the store at a later date, i.e., baby food, wine, bakery items, etc. Businesses can award “bonus points” to the customer who purchases computer add on items that can be used to purchase other accessory items within a certain time frame.

The challenge for us to avoid is battling with our competitors over price and product alone. We can draw a correlation with what the hotel industry calls the “Amenity Wars.” A Strategic Information Research Corporation (SIRC) study revealed that 73% of travelers who responded said it was not the amenities in a hotel that mattered. It was the service level, the staff’s responsiveness to their needs that was most important. We can only give our customers a product that is equal to or better than our competitors. The rest is up to our team. You can only provide the best item that the industry offers to you. I believe the premium customer knows that and wants something more from you, value-added service.

Stop comparing your business on price and product alone. Use the information you gather with your Market Intelligence System (we defined that in the previous article) and get to know what your customers want and perceive and how your competitors respond to that. Then build your own Competitive Comparison Grid and you’ll understand who is in command to win the war.

Thomas J. Winninger, founder of the Winninger Institute for Marketing Strategy is under contract with 70 major companies in North America to ensure their competitive market dominance. He is the author of Price Wars, Sell Easy, Full Price and the recent BULLSEYE Book 1 Think Smart. Take the BULLSEYE QUIZ at Winninger.com

Increase Your Business’s Profit! Educate Your Customers!

Does this mean that only people who graduated with honors will be your best customers? Hardly! Today’s successful business educates customers to expect that whatever we offer is the best. We offer the best in selection, service and integrated value.

Yet, how is it that customers know what to look for? Do they truly know how to shop for real value in an item, not just price? How do they know what to expect in a value versus price merchant? Education is the key! If the only way you are educating your customers is with a sign stating your best price, they can get the same introduction to math at the discounter down the street. The smart independent kitchen design dealer teaches his customer how to recognize a quality cabinet. Price becomes less of the focus when a client is on the lookout for dovetailed drawers and hand-rubbed finishes. Price becomes less of the focus when a customer finds someone who can truly design a special cabinet for her kitchen nook; not just a standard plan forced to fit.

TEACHING THE DIFFERENCE – VALUE SHOPPING
One of the most important things any business can do is to teach customers how to value shop. It can be as simple as providing a chart to point out value versus price differentiation. Very early in our education experience we were taught the difference between apples and oranges. The basic lesson is still very applicable to business today. If you went to the grocery store in search of a nice tart, juicy apple, would you buy a tangy orange? Not if you knew the difference! Why is it then, that we allow our customers to buy the discount model when they truly want the very best their pocketbook can buy? Why give them an orange when they really want a shiny red apple? It is our job to teach them the difference! Teaching differentiation to your customers is not as difficult as it may sound. At its core, it teaches how to recognize quality and what to expect in the product and its dealer or supplier.

A well-known overhead garage door dealer has used an instruction chart that shows residential homeowners how to shop for an overhead garage door. Instructions include specific points that help customers understand how a quality door operates and what its specific features are. It points out safety requirements and what a customer should be able to expect in a reliable and safe door. A leading HVAC manufacturer, Carrier, actually provides written specifications for mechanical contractors who are shopping for their product.

MERCHANDISING – DOES IT EDUCATE?
If you are limiting your merchandising to price stickers, banners and signs, then you will fall far short of educating your customer into bigger profits. Do you provide comparison charting in your dealership that customers can study to learn what is required of a furnace? Are your floor displays set up with special signage pointing out the features that make up a quality dishwasher? Do your customers know what is not negotiable in the safety and reliability of a riding lawn mower? I find it hard to forget the displayed image of a ragged, broken down piece of luggage that has been through the bowels of dozens of airports and only has splitting seams and broken latches to show for it. Sitting next to it is the quality model supplied by a fine leather goods dealer. Although it may be scuffed up a bit, the seams are holding and the latch is secure. As a very frequent traveler, you can bet I want to know how to differentiate between a quality piece of luggage and a bargain bag. Have you made it easy for your customers to know how to recognize quality and value? Is your sales team knowledgeable themselves in all aspects of differentiation?

How does this translate to bigger profits? I know of a retail grocery store that prints a detailed meal-planning guide for customers to purchase. They know just what to buy for a daily meal. This means as an end result, increased sales from spices and seasonings to side dishes and desserts. The customer leaves the store with a sense of satisfaction that she has everything she needs for a complete and healthy meal and consequently, more items in her cart! Are your customers being educated in what to look for in a safe, reliable and quality item? Do they know what horsepower they should be looking for in a boat for family water-skiing and leisure? Although the items you sell or the services you offer cannot fit in a shopping cart, a business with educational, merchandising, a knowledgeable staff and a program to teach value shopping, translates to bigger profits for you as well when your customers leave knowing they got the apple they wanted and not an orange. In addition, it means they will be back to purchase with you again, because they have been educated to know that they can expect you to offer the best and . . . deliver!

You can find more of Winninger’s business strategies in his dealer-focused books: Price Wars ($24.95) and Hiring Smart ($15). You can contact the Winninger Institute at (800) 899-8971; e-mail at twinninger@aol.com; or his website

Be a Smart Business Owner

Identify Customer Categories

Smart companies are the ones that don’t throw away their best response, service or product on customers who will never appreciate it. The smart business owners are the ones who know how to focus their energy on their best customers. They understand what sets apart the good, better and best. Knowing that, these leaders then set about to design and provide different levels of service and product integrity around the differences.

Our last article identified the three categories of customers: relationship, choice and transaction. Relationship customers have the highest level of intensity for what you have to offer and they are loyal to you. They look to you to be the industry expert, their personal consultant. Not necessarily the largest category by numbers, but certainly the most profitable to your bottom line.

CHOICE CUSTOMERS
Choice customers, the second category, may be harder to recognize than the other two. They frequently purchase a lot and can be very solid customers. The choice customer will come to you for product and they enjoy the benefits that come along with it, but don’t seek out the higher level of service and support as do relationship customers. What is the best response to a choice customer? A choice customer will want a selection of items at different price points. Provide your customer with a strong value package of vertical integration. Offer Package A: which is a base item at a fair price. Package B: the same item but for perhaps $1000 more you include a value added item. Package C: the highest value package which is more expensive than A, but only a small increase in price from B. The choice customers need to have options and know how to compare the price against the package. They will be concerned about service after the sale, as with the relationship customer, but they will not necessarily base their decision on that. They may or may not come to you for their next purchase – they do shop the competition. The key to moving a choice customer into a relationship customer is to focus on value not price. Your approach to a choice customer might be, “Bill, I know you appreciate a good value for your investment. You want to provide your family with the finest car and the highest rating in safety. May I help define for you the benefits in purchasing Package C? The small increment in cost is far outweighed by the value received in owning a car with a more powerful engine yet an award winning safety design, plus the luxury your deserve!” A choice customer likes just that, choice, and the flexibility that comes along with it. But beware, the choice customers, if you are not skilled in capturing them, may easily float to the competition.

THE TRANSACTION CUSTOMER
The easiest category of customer to identify is the transaction customer. This customer has the least amount of attachment to you and your product or service. Transaction customers are price driven and will shop, bargain and barter until they have driven down the price as far as they can. They do not want a relationship with you, just the product and no matter how great of service you offer to these people, you can never build value with them. The “big box” stores know exactly who their customers are, the transaction customers. They do a great job of segmenting their part of the market and they appeal directly to the “lowest price”.

CREATE A CATEGORY BENCHMARK
Once you have determined which of your customers are in what category, it is particularly important to identify the product and service package that compliments their needs as well. Many businesses I work with are now are moving their transaction customers to catalogs, either on CD-ROM or the Internet, or they service this customer by phone orders. Relationship customers want a product and service package that is tailored to their high-level need. The airlines do a great job of identifying service levels with Platinum, gold and silver categories. The hotel industry has segmented their market into luxury/first class, extended stay and midmarket limited service accommodations. Your benchmark service must say to the relationship customer, “I want to be your industry specialist. You can count on me to provide you with not only great product and knowledge, but outstanding service designed to meet your individual need and lifestyle.” The most important thing to remember is that not all customers can be treated the same, nor do they really want to be. Knowing how to segment your market and identify your customer categories will help you maintain your Maximum Value Perception and command the full price you deserve.

Thomas J. Winninger, CSP, CPAE, and member of the Speaker Hall of Fame is the president of Winninger Institute for Brand Strategy. Over 70 major companies in North America depend on him to assist them in maintaining their market dominance. The new millennium has seen the release of his newest book “Full Price!”. He is also the best selling author of “Price Wars” and “Sell Easy”. Contact the Winninger Institute at (612) 896-1900. E-mail: thomas@winninger.com; or visit our website