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

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

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

A Key Strategy to be a Leading Business Owner!

Build A Strong Team!

You’ve had a great month. Sales are up, margins are stronger than they’ve ever been and the future looks bright. All that hard work you’ve put into segmenting your market, creating your brand and controlling the customer’s buying cycle has really paid off! True in a major way, but I see far too many business owners who fail to recognize that at the end of the day it is not the product or services they offer but the team they have built that is the company’s most valuable resource and gateway to full price.

If you’ve ever had a family member that has been seriously ill or injured, you were more than likely to seek out the very best professionals that could give your loved one the most excellent care possible, right? Certainly for example, providing art supply products or services to your best customers cannot equate to brain surgery. Yet, when you have given your life-blood to building the finest art supply store possible, why trust it to people who will give your valuable customers less than excellent service? All the best foundations of great marketing strategies can be destroyed in the moment when a sales associate treats a customer carelessly, or casually. In my work with great companies all over the nation, I often find them remark that one of their greatest challenges is attracting and retaining good people. The strong economy has done us one disservice by assuring employees that if they don’t like one job, there is another one waiting just around the corner. As I’ve said before, if everything you do today affects the strength of your business tomorrow, you can’t afford to put just another warm body on your sales floor. Leading business owners are the ones who have the right culture and procedures in place that enable them to identify, retain and develop the right employees.

THREE KEY ELEMENTS TO BUILDING THE RIGHT TEAM
To develop effective, productive and successful teams, the smart leader will focus on:

• Tailoring their people to functions, not just the job description
• Exciting their members for the long term.
• Recognizing that building a team is an ongoing process.

Have you ever talked to a prospective team member who asks what the job description is? I would immediately begin to describe the function. For example: if your business is large enough to require a receptionist, you have a unique opportunity to build a team member that can make the difference is whether or not a client will stay with you or not. The receptionist’s job description is to answer the phone and greet customers, but that isn’t her function. More importantly, her function is to convince customers that “her” office, showroom or dealership is the best possible place in the industry that they can go to have their needs met. See the difference? The team member (not “employee”) in sales has a much higher function than showing a digital camera model to an interested client. His function is to find out the highest need of that client, match that need to the best product available and then make the process of the sale a rewarding and fulfilling experience for the client.

EXCITING FOR THE LONG TERM
Smart leaders focus on making team members comfortable with the functions of their employment during the orientation process and clearly identify the skills they want their members to learn. They quickly then move on to building an environment for their team members that fosters personal and professional growth and a tangible way to track that growth. You want your clients to look to you for your wealth of knowledge and experience in the industry, right? Then are you making sure your team members have that knowledge and experience? Having them read trade magazines is fine but being able to relate personal experience to a client is as necessary as being able to quote industry facts and figures. You may consider creating a Mountain Bike Outdoor University. Take your staff out a couple times in a season to try out the equipment and “test the water” so to speak. It’s the ultimate in hands on training.

I believe good people are looking for significant things from a potential employer. They include the educational opportunity to learn skills which can be leveraged for the rest of their lives; the chance to become part of the lead team in the dealership; and a place where loyalty and commitment are tangibly rewarded. This comes in the form of “soft” benefits such as creating a fun place to work, opportunities to build skill levels and in “hard” benefits such as profit sharing, tuition and flex-scheduling.

TEAM BUILDING IS AN ON-GOING PROCESS
Recruitment should be treated in the same way as marketing and sales are. Campaigns should be targeted to attract those people most likely to be interested in working with you. Successful leaders raise their visibility to these targeted groups. They do not just hire people. Instead, they constantly look for good people who have the potential to grow their dealership. Don’t look for people just when you have a position to fill. Every time you have a special event, sponsor a seminar or training session, have brochures about your business and applications available.

The economy of this new millennium demands that your business runs everything more efficiently, laser specific to market segments and anchored to value. Having a well-defined, cutting edge support staff that is wrapped around your business strategy will go a long way to bringing you 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!

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Leading Market and Product Strategies. Minnesota’s Thomas Winninger, The Business Expert

Thinking Big is better than thinking small even if you are wrong.

It is amazing to me that in these times of economic challenges the mentality of the left brainer (bean counter) is unfortunately falsely validated. How many times have you been confused by some one who said that it is time to cut back. Cut back mania is revenging the innovative nature of our potential today. There has been a 2000 old cyclical historical process that of putting a bean counter at the top of the empire for 3-4 years then in desperation because there is no real market growth and not a lot of fun. So in desperation the parliament or board kills off the bean counter and installs a market maniac. Suddenly there is great market growth and fun and energy but the bottom line doesn’t leap up. So what do you think? Which is better?

Most independent enterprise types chose the latter that being market maniac. But what I am saying is the most prosperous growth come under this type with a good dose of bean counting.

So what? This is not the time to cut back to protect yourself and you business.

So what? The point is what should you do now not only to protect you assets but also protect them by getting moving forward.

1. Focus on what makes you money. Which products/services make you money and which don’t? If is a service, which service creates customer value and which don’t? A store carries 4000 items and the customer in 12 months only buys 35 items on a regular basis. Is this ridiculous our what? Think of all the space, cost that goes to those that make you no money. Get rid of the bad stuff. It is getting in the way.
2. Focus on which customers make you money. This is not being insensitive. Absolute Truth: While you are trying to serve the disloyal customers you are losing the loyal customers. I call it “lose the best and keep the rest.” This is a very unfortunate, devastating position to be in and you are probably guilty of this, we all have been.
3. Get rid of employees who are not helping you grow the business; they are too expensive no matter how little you are paying them. No matter what it is, it is too much! Now is the time to define each person’s job description in terms of growing the business.

Truth: You cannot save your way to prosperity.

Thomas Winninger “The Business Growth Guy”

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