A Tale of Two Sales

Hi_shirt_dog
Here’s a great story of two salespeople from the Retail Contrarian blog by Doug Fleener.  It seems he went looking for a Hawaiian shirt at a Tommy Bahama store.  (Somebody please tell Mrs. B that I’m not the only person who still wears them.)  Anyway, the salesperson at TB did a good job and Doug bought the shirt.

Passing through the men’s department at a nearby Nordstrom’s after using the restroom, he was approached by a sales associate who noticed the Tommy Bahama bag he was carrying.  To make a long story short, he ended up buying another TB Hawaiian shirt at Nordstrom’s.  This associate didn’t make a sale, she created a sale.  Big difference!

It’s not a surprise when Nordstrom’s sales people give excellent service.  They’ve been a role model for outstanding service for years.  But they don’t have an exclusive.  Any retailer can follow their example.  In fact, they’re not bashful about sharing what they do and how they do it.  The book "The Nordstrom Way" was first published in 1995.  A Google search of nordstrom and service returns over 2,000,000 hits.

Good service nearly always results in a sale when the customer has the intention of buying.  Excellent service will often create a sale where there was no intention to buy.  Click here to read the entire post.  I suggest you print it out and post it on your store’s bulletin board, or better yet, use it as the basis for your next sales meeting. 

You might also want to subscribe to the Retail Contrarian blog. I’ve also added a link on our blogroll.  It’s one of the very few blogs aimed specifically aimed at retailers.  You’re reading the only other one that I know of.  If you know of others, please let us know so we can pass them along.

Radiohead

Radiohead
To quote Monty Python, "And now for something completely different."  A British band called Radiohead has released a new album called "In Rainbows".  I personally don’t know the first thing about the band, or their music.  But here’s the interesting part.  According to the Toronto Globe and Mail, since they have no contract with a record label, they’ve released "In Rainbows" themselves.  It’s only available on their web site.  You can’t buy it at Wal*Mart, or even at Amazon.com.  The twist is that YOU decide what you’re going to pay for it.

That’s right.  You can give them a dollar, or twenty dollars.  It’s up to you.    According to some sources, the band may have made as much as $10 million on the first day the download was available.  When you consider that the band gets virtually all the money, compared to the percentage they would receive from the record label under the normal agreement, it looks like the band made a pretty good move.  Radiohead is known for its innovative music, so it’s not out of character for them to come up with an innovative marketing model.

No one’s suggesting that this would be a good model for any other business.  The band has very little cost in their product.  Once they pay any backup musicians, pay for studio time, and pay a staff to handle the distribution, their cost is nearly zero.  They don’t even have to pay for a blank CD.  We should all be so lucky.

But it does show that we’re living in a different age.  Outside-the-box thinking is definitely in order when it comes to doing business in the twenty-first century. Cost plus pricing isn’t really a viable option anymore.  Those days are over.  But what’s going to take it’s place?  The key to setting the right price is figuring out what value the customer places on a product or service.  Maybe asking them isn’t such a bad idea.  What do you think?

The Price is Right?

Thanks to Larry Engemann of Phil’s Sewing Machines in Washington, MO for pointing out this article from Forbes.com on one of MYOB’s favorite topics; pricing.  If you’ve been following the news recently, you know that after only two months on the market, Apple dropped the price of its iPhone by 33% creating a firestorm among the first adopters who had stood in long lines to buy the device at full price when it first came out.  The criticism was so bad that Steve Jobs issued an apology and offered customers a partial rebate.

As we’ve pointed out here many times before, pricing is a complicated issue.  The days of marking up everything in the store by the same percentage are over.  Besides, cost-plus pricing is seldom the best way to maximize your profit. (See our earlier post on Variable Pricing.)

The Forbes article goes into some detail on "Temporal Price Discrimination", a terrible name for a business practice if ever I heard one.  It means pricing a product or service based on the customer’s ability or desire to pay.  I prefer "variable pricing".  For example, those first iPhone buyers knew that there would be price reductions sooner or later.  Apple’s mistake was taking too big a cut, too soon. 

Variable pricing can also be applied across seasons, geography, or by adding or taking away features.  After-Christmas sales are an example of seasonal pricing.  A Christmas tree is certainly worth less to the consumer on December 26 than it is on November 26.  A dealer would be leaving money on the table discounting seasonal items too early.

A good example of geographical pricing might be a hot dog at the ball game.   That 99 cent hot dog at 7-Eleven probably sells for $3.50 or more at the ball park.   Gasoline will usually be more expensive at tourist destinations than it is at home.

Variable pricing according to features can be an interesting one.  I had breakfast at Denny’s while I was out of town last week.  They offer a special "Senior’s Menu" for those 55 and over.  Their "Senior Omelet" costs quite a bit less than their "Ultimate Omelet".  But if you read the menu descriptions, the old follks version uses one less egg, and the accessories aren’t the same.  Either omelet is a good value. They’re just different and priced accordingly.  The same is true of their other "Senior" items.  (BTW, I’m over 55 but I bought the regular omelet.)

The author makes several other good points, but I’ll leave it to you to check them out. BI will mention that he (or she) talks about products that carry an emotional attachment or that become a symbol of the owner’s sense of self.  Kobe beef anyone?

If pricing is a problem for you, click on the "Pricing" Category link in the right column of this blog to see some of our earlier posts on the subject.  If pricing isn’t a problem, please use the comment link below to tell us how you do it.

Telephone Courtesy

Last Friday’s St. Louis Post Dispatch featured an interview with Nancy Friedman, the "Telephone Doctor".  Chances are you’ve seen one of her videos.  In 23 years, TD has grown into a $3 million company.  According to Friedman, she got the idea for the business when employees of her insurance company were rude to her on the phone.  She hung up and called the manager, telling him to cancel all her policies.  When the manager asked her why, she told him that his people were rude, abrupt, and unfriendly.  The manager agreed.  According to Friedman, "He asked me to show the people in his office what they should say. I
said things like, "please" and "thank you." And as the Lord is my
witness, his people were writing these things down."

Here’s something that Friedman says works every time–"Mr. Jones is out of the office right now. My name is Nancy. I work with him. How can I help you? What can I do for you?"

The bottom line is that common courtesy isn’t so common nowadays.  Whether you blame society in general, parents, the school system, or cable TV, if your people are courteous on the phone, your business will stand out.  It’s just one more thing that you can do to pull ahead of your competitors.  Whether you go with professional training, like the Telephone Doctor, or you just brainstorm with your people on the best way to handle a customer who calls, it’s well worth your trouble to get this one right.

Yet Another Post on Competing with the Big Guys

Competing with the big boxes is a subject near and dear to our hearts and it’s always good to hear from someone who’s doing it successfully.  Mark Riffey’s Business is Personal blog tells us about a Whitefish, MT arts and crafts retailer who has found the right formula. 

Rick Latta, the store’s owner says “I can’t compete with Wal-Mart prices, but Wal-Mart doesn’t walk
customers through projects, give them ideas, teach them tricks or have
a studio with tools where people can come and work and ask questions.".

Quoting Riffey, now, "This is where you make a difference by hiring the right people
(experienced in those crafts), paying them a little more so they don’t
have to work at Wal-Mart, and more importantly, doing what Wal-Mart
simply won’t do.?

I couldn’t have said it better myself.

Yipes! Skype

VOIP.  No, it’s not the sound of a dripping faucet.  (voip, voip)  Skype

VOIP stands for Voice Over Internet Protocol.  And that means FREE phone calls, even long distance.   As long as you and the person on the other end both have the Skype software installed on your computers along with a microphone and headset, you can talk to each other all day at no charge.  If you both have web cams, even video calls are free.  Reviewers say that the voice quality of Skype is equal to or even better than regular phone service.  Of course, one variable is the quality of your hardware.

What if both parties don’t have Skype?  You can make Skype calls to any phone in the United States for a monthly charge of less than $3.00.  International calls are charged at as little as 2.1 cents per minute. 

One word of warning.  Skype service recently went down for two days causing some serious inconvenience for many businesses that had switched all their phone service to the VOIP provider.  A complete switch is a risky move, as many found out.  But, as a supplement to traditional providers, Skype is a good choice.  For example, if you have family, friends, or business associates who are a long-distance call away, no matter how good your current carriers rates, free is always better.

The good news is that the software is free, so you can try it out with absolutely no risk.

Read more about Skype on Wikipedia.

Gov Gab

Gov_gab_4
  Here’s something from the Federal Citizen Information Center, you know, the people in Pueblo, CO who send out the pamphlets on just about every subject under the sun.  This is a blog called Gov Gab.  According to their press release, "

"Visit www.GovGab.gov for a fresh take on
government information seen through the eyes of five federal employees. Though
they have different backgrounds and interests, all the bloggers enjoy sharing on
a more personal level how they use the great government information they’ve
discovered while working for FCIC, 1
(800) FED-INFO, and USA.gov. Each weekday
you’ll find a new entry, and you can join the conversation by leaving a comment
or emailing the bloggers. Come check us out!"

I did check them out and it’s a pretty interesting blog.  The posts are conversational and cover a variety of topics.  The blog is barely a week old, but it looks like they’re going to post every week day.  So far, there’s nothing heavy, just some enjoyable conversation.

Like the press release says, "check them out."  You might as well, you’re paying for it.

 

The Golden Calf?

Golden_calf
Have you ever tasted Kobe beef?  I haven’t, but I hear it’s pretty good.  It’s so good that if you can find a restaurant that serves it, it’s going to cost you about $30.00 per ounce.  That’s per ounce, not per pound.  An eight ounce serving will set you back about $240.00.  And that doesn’t include a salad or a baked potato.  They’re extra.

So what makes a steak cost as much as a color television?  First, the beef comes from a special breed of black cow that lives in Japan.  That’s the real thing.  (There is "Kobe style" beef, raised right here in the USA, but it’s not the same.)  The Kobe cows get to drink sake and beer and some of them even get massages.  They say that a relaxed cow produces more tender meat. (The cows might not be so relaxed if they knew why they’re getting such special treatment.)

Now, you can go to Ponderosa Steak House and get a steak dinner that includes potato and the all-you-can-eat food bar for about one twentieth the cost of the Kobe steak.  Or, if you have a little more sophisticated pallet, you can get a nice steak dinner, with cloth napkins and candles on the table for maybe a tenth of the cost of the Kobe.  A steak dinner isn’t just about the meat, it’s also about the dining experience. 

Which brings us to our business.  We have to face the fact that whatever it is that we sell, there’s going to be someone who sells the same thing, or something that looks like the same thing, for less money.  And there will always be customers looking for that price-only transaction.  If you try to play that game, you will probably lose.  There is also a huge group of customers that want more.  They want a total shopping experience.  They want the best merchandise, with the best service, in an atmosphere that makes them feel special.

For the same reason that every steak house isn’t a Ponderosa, a retailer that focuses on the shopper’s emotions, will be able to command a fair price and provide great service.  Remember those pampered cows.

It’s Not the Nickel

Seth Godin (Seth’s Blog) points out that when Ikea recently started charging five cents for their shopping bags, consumption dropped 50%.  Are Ikea’s customers so destitute that they can’t afford a nickel?  Surely not.  So, what happened.

As Seth points out, when you charge for something you force the customer to make a choice.  If you include it in the price, there’s no choice required.  McDonald’s knows this.  "I’ll have a number 4, please" is just so easy, much easier than ordering each item separately.

If Ikea’s goal was to cut down on shopping bag usage, they succeeded.  If their goal was to turn the bags into a profit center, then they failed badly.  Raising the price of every item by five cents and giving the bags away "free" might have gone unnoticed and would have had the advantage of selling a bag to every customer, whether they wanted it or not.

Most retailers instinctively understand the concept of "value added."  If not, study the automobile industry.  They’re experts at it.  You add to the customer’s perceived value of the offering by the retail price of the additional item(s) while your cost increases only by the wholesale amount, increasing the profit accordingly.  What a concept!

No phone, no lights, no motorcar……

Remember Gilligan’s Island?  I’m not going on a three hour cruise to a desert island, but your intrepid blogger will be hanging out with the Trappist monks in Kentucky next week.  They do have lights but they don’t have internet access and cell phone reception is iffy.  But, thanks to the magic of modern software, MYOB will right here every day, just like you’re used to.  Next week is pre-blogged, if there is such a word.  The posts are done and will be posted automatically.  The only thing that will be different is that if you send us an email, it won’t get answered until October 15.

Have a great weekend and a great week!

Teenage Entrepreneur

If there’s one thing we know about the Internet it’s that we have no idea of its potential.  Based on past performance, there are new uses for the web on the horizon that we can’t even imagine today.  The only limit is our imagination.

For example, here’s an interesting story by Katherine Yung of the Detroit Free Press about a seventeen-year-old who’s parlayed an $8.00 investment into a million dollar business.  In 1998 Ashley Qualls of Southgate, MI borrowed $8.00 from her mother to purchase the domain name Whateverlife.com.  Qualls is a graphic designer and admitted "computer geek".  (She spent seven hours building the computer she uses in her business.)  The site offers free designs for MySpace pages and a social network for teenage girls.  Revenue comes from ad sales.

Whateverlife gets more visitors than Oprah.com and ranks number 825 out of 20.3 million web sites according to Quantcast, an Internet ratings service.  The site had 2.4 million visitors last month.  Last year the teenager bought herself a new house with the proceeds of the business.  Otherwise, most of the cash coming in stays in the business for future growth.

Speaking of the future, Ashley has big plans for the site and intends to stay with it.  She recently turned down a $5 million offer to buy the business.  Like I said, the potential of the Internet is only limited by our imagination.