I was customising our Retail$mart training program for a client this week, and I thought the IR readers might enjoy this litte extract from the module on 'Pricing'. (No charge

Most readers would be familiar with these strategies, but now you will know WHY they are used so widely and effectively.

1. Irrational pricing is putting the price of items at say $4.95 instead of $5. The reason is based on memory processing time. Rounding upward involves an additional decision compared with storing the first digits. Furthermore, due to the vast quantity of information available for consumers to process, the information on price must be stored in a very short interval. The cheapest way to do so, in memory and attention terms, is by storing the first digits. Customers think they are getting a better deal than they in fact are. (Besides, by pricing like this, you force the cashier to make change, reducing opportunities for fraud.)
2. The purpose of the discount vouchers is not to save customers money, but to get them to buy products they don’t normally buy, or to buy more of it. Look again at the terms/ offers associated with your loyalty card.
3. Eye level is buy level: Products positioned at eye height sell twice as well, so place your highest margin (not most expensive nor most popular) items there.
4. Known Value Items (KVIs) can be sold below cost to try to beat the competition: these are loss leaders. Margins must be increased by raising prices on other items that are not KVIs, and then upsold with the loss leaders. Consumers exaggerate the perceived value of the savings and tend to spend (more than) they thought they saved. NEVER run a loss leader on an item that os not a KVI.)
   
5. Buy one Get one free ('BOGOF') has been shown to increase purchases by up to 150%. Unlike 50% off, which actually does save money, 'BOGOF’ deals accustom consumers to buying more of a product than they normally do, so when the offer ends they are likely to carry on buying more.
6. Value add or bundling. Bundle a few complementary products in one package and charge marginally less.  Or, add value by slicing/ opening/ cleaning/preparing a product. Anything that spells convenience is worth extra dough – and well beyond the cost of adding the value.

It goes without saying that fair's fair -and ethical pricing is (in the long run) the best strategy. But creative pricing tactics are quite legitimate.

And while I have your attention, my understanding is that the 'wet look' is the new 'in' thing for mannequins in 2008. (Just in case you are in the market.)


As always, have fun... Dennis

The Direct Marketing Association (DMA) released their "Channel Integration and Benchmarks in the Retail Industry" report. I have taken the liberty of turning their findings into a checklist. (Don’t we all just love checklists?).

Score your business on EACH of the ‘strategic implications’ listed in the middle column, by writing YES/ NO - and then read the interpretation below. (There are no ‘maybes’ allowed.) Good luck:

Research Finding	Strategic Implication	YES/NO
The absence of a brick-and-mortar store is becoming prevalent among retailers (41% don’t have a physical store.)	I actively seek to grow my direct (marketing/ e-tailing business) and have several initiatives in the pipeline or being trialled.
The website is the most consistently used direct marketing channel, followed by email and direct mail.	I have a great website that gets traffic equal to 50% of my store traffic.
66% gather customer information from direct mail and 65% gather it from the Internet.	I have a great, accurate database of customers from whom I get at least 10% of my sales.
83% segment their customers based on demographics, 77% base it on purchasing frequency, and 76% on products purchased.	I have a perfectly good handle on the exact numbers and types of customers that I sell to , and I proactively market accordingly.
Only 33% provide cross-channel order fulfilment.	I know what this means and I am ready for it when the market is big enough
Discounts remain the most popular loyalty program, with 80% using them.	My loyalty program is NOT effectively a discount program; so it is DIFFERENT from everybody else’s.

 

Count the number of YESSES

6 out of 6: Good stuff. You are on top of your game.

3-5 out of 6: Heading in the right direction, but must increase the pace or you will be left behind.

1-2 out of 6: Call someone

0 out of 6: Well, it was fun while it lasted, wasn’t it?

(I have written another piece here on the new Starbucks strategy, and it is a nice little exercise to compare YOUR strategic initiatives to what they are doing to revitalise their brand.)

I am part of a raft of people who are going to contribute towards a book that will be published soon (with all proceeds to Variety, the charity). The topic I have chosen to write on is: The difference between thinking & doing.

And dear Inside Retailer - I would TRULY appreciate your thoughts via the comments below. Please?

My initial thoughts are... (and please feel free to agree/disagree):

The difference between thinking and doing is… many millions of dollars. Even if money does not motivate you as a measure of reward, you could not argue the efficacy of money as a performance metric.

It is no coincidence that DO and THINK do not have even one letter of the alphabet in common – because they have nothing in common. Thinking is a mental activity and doing is a physical one – even in the cerebral world of Tech and the new age economy.

For the paradox of doing is that the more you contemplate doing, the less actually gets done. Understanding doing and doers does nothing but enrich your understanding of doing without doing anything about it. Thinking is a great diversion; it cloaks itself in the aura of respectability associated with intelligence. Thinking is confused with smartness. And smarts. Thinking is seductive and attractive for the better you become at it the more proficient you become at exploring yet another avenue… of thought. Thinking leads to nought but more thought.

The main question is and remains: why is doing so hard? More particularly, why is it so hard to switch from thinking to doing?

• Doing is simple; therefore unattractive.
• Doing is definitive; therefore it is a harsh judge of your efforts.
• Doing is public; therefore a failure is public and failure is measured by other people’s judgement (as well as and as much as your own.)

For the greatest enemy of doing, is that thinking produces powerful reasons why not doing something NOW is a great thought.

What do you think?

 

 

We conduct retail training sessions in Wollongong and Nowra which necessitates an overnight stay in a motel. I was fortunate to discover what has now become one of my favourite places in Wollongong. Usually – at 8 pm, I am not in the mood for a heavy dinner, but one night, after a particularly gruelling day without a decent meal I visited the restaurant attached to the Motel. What an experience!

Some examples of extreme service are now clouded in history and it is uncertain as to whether it ever happened: South Western airlines famously picked up a customer that was running on the runway to make his ride, and Nordstrom’s exchanging a used tyre that a customer brought back, are just two such examples.

But this one is real: I was served by Angie at Downtown Motel, in Crown Street; and boy is this girl amazing!

I arrived soon after two other gentlemen, and watched as she greeted one (about 80 years old) with a hearty kiss, then she greeted the other gentlemen with a kiss (about 60 years old)who turns out to be the son of the other gentleman. The welcome was so warm and engaging, I had to ask if she knew them.

They were not related at all but they both were regular customers. I noted that she did not offer or serve the younger gentleman a drink, and established later that, without having to ask, she knew that he was on standby, waiting for a patient to deliver a baby; but was equally determined to keep the regular appointment with his dad. They had been visiting there for years. The older gentlemen’s wife had passed away a few years ago but they kept returning to the restaurant.

I noticed that the older gentleman had order crumbed lamb chops. It was not on the menu, and I asked Angie later how she did that. She said when they book; the chef especially shops for lamb cutlets and prepares it according to his wife’s recipe.  She asked if there was anything special I would like that wasn’t on the menu.

She remembered to offer me a Sauvignon Blanc (one month later, after only one vist) but that wasn't what blew me away!  On this visit- exactly one month later, on a Tuesday - the two gentlemen were both there again and of course I was going to watch everything with a hawk eye. The gynaecologist turns out to be a diabetic. He often comes straight from the hospital to honour his commitment to his dad, and occasionally forgets to eat and then needs his insulin injection - and ANGIE KEEPS A SPARE INSULIN INJECTION IN THE FRIDGE! Properly sealed, marked, identified in a special holder inside the fridge at the bar counter – supplied by the doctor of course. And Angie even knows how to administer it.

Now THAT is extreme service.

This woman understands people, and she cares for people. She truly understands the meaning of the word ‘hospitality’, and her customers regularly come back for that “fix of love and giving”.

And bloody oath, Downtown Motel is where I will be staying next time I am in town. Wouldn’t you?

Posted by Moonyeen

Note: Angie does not know that I am writing this, and probably does not read blogs.

Last week I wrote about the negative impact discounting has on product performance – real, not imagined. (If you missed it – read last post.)

A few truisms about PRICE:

• Nobody likes to have to or indeed wants to buy the ‘cheapest’ – and for a wide range of products, consumers actively avoid the ‘cheapest’.
• Continuous discounting has the effect of raising customer expectations for even bigger discounts in the future. (Weber’s law about perceptual thresholds apply.)
• When given an option of 3 prices, 68% of consumers select the middle price.
• Price is used as a heuristic for ‘quality’.
• As retailers, we have trained customers very well to consider price as the most important buying consideration.
• There can only be one price leader.
• Price is often used by consumers as an objection – when in fact they have other objections which may be more difficult to articulate or which they just don’t bother to share with the retailer. (And retailers believe this because it is easy to believe, and the response to the objection is simple and straightforward.)
• But most importantly, price should not be confused with value.

The right approach to pricing is to develop a sound value proposition.

To illustrate, let’s consider a cup of coffee. How often do you walk away from the takeaway counter because the coffee is too expensive? Let me guess…never? Truth is, nobody knows or perceives a difference between a cup of coffee at $2.50 or $2.70 or $3.00.

But customers are not stupid (she is your wife, your child etc). If every shop is selling at $2.50, then, over time, customers will tend to avoid the shop selling at $4.00, unless the value received for that extra $1.50 is very clear.

I won’t bore you with the mechanics of how you create the value proposition, but in essence you have to understand ‘what’ your core product offer is. It is not ground beans and hot milk. If you think it is then you will only be charge $2.50 like everyone else. The value received (ambience, service, social opportunity, a break from everyday or whatever the ‘value’ is that you offer), must add up as equal to the extra $1.50. It is as simple as that.

The KEY is this: A $5.00 watch may have more features than a $5,000 watch, but people buy the $5,000 watch because the perceived value is at least equal to the price. As a retailer you must understand that you are not selling a timekeeping device – but something else. The ‘something else’ is the value proposition that you must identify and the answer lies in the definition of your core product.

Have fun

Dennis

PS: Google this phrase: "psychology of retail selling" - and see who is the global leader in this field...