The formula is: 2 – 1 – 2 = 50. Let me explain.

I am workshopping with some of the top newsagents all over the state at the moment, and the structure of our discussion is: how to create a compelling retail proposition. In the first instance, we have to get the ‘offer’ right. Everybody defines offer differently, but for the sake of simplicity, I define offer as: Product + Price. We then workshop pricing (as many of them have traditionally operated under a fixed margin model) and discuss the mechanics and the strategies. These workshops have reinforced that the SME retailers are often far too reactive and effectively allow suppliers to run their business.

• Increase revenue by 2% (follow the pricing strategies)
• Reduce COS by 1% (negotiate prices)
  
• Reduce Expenses by 2%(manage opex)
  

The links in this post provide more detail on each of the points made.

A 50% increase in Net Profit can be generated in one of 3 ways - bu the 'formula' above focuses on only 2 of these areas.

1. Sell More

Selling more is obviously the domain of:

• Advanced Selling Skills
• Great customer service
• Excellent Merchandising
• Marketing & Promotions

Each of these is really a topic worthy of detailed exploration and should be. In our experience though, most retailers only think of these facets and neglect the other drivers of profitability.

2. Charge More

• Check each sub-category and reduce the number of price points from x to 5. Customers don’t really get the difference between say a pepper grinder that sells for $17.95 and one that sells for $18.95. Your entry price point is your fighting/ best price point, but the others can be very easily massaged to make it more sensible to comparison shop. Adding a few cents to most products come easily. The reason why you have price point proliferation is because of ad hoc pricing resulting from adding a fixed mark-up to whatever the cost was, without thinking how the customer buys.
• In stead of charging $1.95, you can charge $1.98 and get the same psychological effect and make 5^c more – on every single unit sold – forever.
• Charge for value-add services (wrapping, bags, delivery if these were always free) because if you do it better than the competition, you don’t have to match their behaviour. (And Aldi seems to have done a great job educating customers differently.)
• See our previous post about 6 sneaky pricing strategies. There are ways of raising the price without making it too obvious.

3. Spend Less

NP can be increased solely by reducing expenses, but that is not very easy as most good retailers will have very good handle on operating expenses. Therefore the target is to reduce opex by only 2%.

The biggest expense is of course your Cost of Sales. Here is a list of discounts that you can negotiate. Just because the supplier has never done it that way, does not means that they never will:

• Trade discounts
• Quantity discounts
• Promotional allowances
• Free delivery
• Early settlement
• Seasonal discounts
• Slotting fees (paying for the shelf space)
• Markdown guarantees
• Rebates
• Payment terms
• There is also an opportunity to ‘outsource’ some of the work around merchandising and stock management up the supply chain, reducing your own cost.

The most fertile areas for expense reduction are:

• Stop discounting the wrong products. Only discount KVIs – and only if you have to. There is way too much discounting of products – at prices that don’t increase sales volume – of products that customers don’t know the value of.
• Cash flow management. Do you have and manage your cash flow (a simple spreadsheet will do)? If not – well there is more than 2% right there!
• Bank charges & Finance costs
• Reducing Storage costs
• Re-negotiating insurance
• Proper, effective staff scheduling. Using 15 min increments rather than full hour increments will easily shave a percentage point off your wage bill.
• A better handle on shrinkage. Rule #1: Always prosecute – even though the cost/effort etc. initially seems prohibitive, the staff and shoplifters will learn pretty quickly – and that is still the best deterrent.

Every business is different, but just a little bit of attention to the right areas will make a massive difference.

The biggest reason why retailers DON’T do these little tings that have such a big impact? They are ‘too busy’. Busy working ‘IN’ the business as the cliché goes. There is a simple solution for that too – but more about that some other time. In the mean time, just evaluate the impact of 50% increase in NP vs the cost of employing another staff member to relieve you of your ‘busyness.’

Received wisdom says that since the Lord gave you two ears and one mouth, one should use them in that proportion.
93% of people rate themselves as good listeners while only 13% of people rate other people as good listeners. (Okay, I made that up, but you know what I mean )

We are never taught how to listen; certainly where I came from the only advice I ever got was to “shut up and listen”.

In communications-speak, real listening skills are referred to as 'Active Listening'. It is not an exaggeration to put active listening at the top of the list of desirable interpersonal skills.

The following five techniques to improve active listening may seem obvious, but it requires practice in order to become skilled at it. We advise in our training that one should master them one technique at a time. As you master each successive technique it becomes ingrained surprisingly quickly.

• Beware of personal bias                       

As with most facets of personal development, the vital first principle is always one of self-awareness. Even if you do not like the person’s general approach, focus your own attention on becoming aware of your own moods/feelings when you are approached by certain people. (Jot down how you felt at the first moment of contact with every single person after they have left. You only have to do this for a day or two and you will notice a pattern – and be able to keep doing it without having to write it down.)

•   Listen to the words a person is saying as well as how those words are being said.

Focus on tone of voice and body language; consciously listening with your heart, your eyes and your ears. Simply identify one body language movement or one inflection of the voice in every conversation and attempt to understand how that supported or contradicted what was actually said. Soon you will be able to pick up multiple signals.

• Focus on the speaker                            

Do not look at other customers, and employees, avoid fiddling with your phones, books, your hair whatever. Concentrate on standing absolutely still. Don’t sit down, don’t stand up don’t put your coffee down, don’t reach for your smokes. Make and maintain eye-contact.

•  Do not interrupt or change the subject

It is just as rude to step on someone thoughts as it is to step on their toes! Suppress whatever urges you may have to correct someone – however obvious their error. More often than not the ranting IS the purpose – and not necessarily any rational solution.

•  Ask questions to clarify                        

The last technique actually involves speaking, but the trick is NOT to answer any concerns or address any problems, but to ask questions. Not any type of question (like why this, when that). Simply paraphrase what you have heard in a question.

All of these techniques work because we use our free mental time.  We think 3- 4 times faster than people speak so it possible to hear the words AND interpret the body language; it is possible to hear the message AND think about your own mental attitude.

Good listening skills are not only at the core of great customer service, it is at the heart of building effective personal relationships.

 
It just takes practice.

Have fun
Dennis

Check out: The 4 key measures of retail productivity if you have another moment.

Photo: http://www.flickr.com/photos/metrojp/92038203/

Dittmar (of University of Sussex) has established what we have long suspected:

Impulse buying relates more strongly to poor self-image than it does to strong desire short-term gratification.

Consumers buy on impulse because the purchase:

• "puts me in a better mood”,
  
• “makes me feel more like the person I want to be” and
• “expresses what is unique about me”. 
  

But regret was more likely to occur when shoppers had explicitly bought to improve their self-image.

“Compulsive” shoppers also differed from ordinary consumers in that they were more motivated to buy in order to bolster their self-image, and they are more materialistic. (Hint, hint.... how would you sell to them?)

Links were stronger for women than men, suggesting that shopping still constitutes a more culturally available and socially acceptable activity for women.

Practical Implication:

For "high impulse" goods, psychological buying motivations become more powerful than price and usefulness. This means retailers must learn to merchandise & sell on psychological factors rather than price/functionality.

Have fun

Dennis

PS: Too boring to publish here, but in case you wanted an executive summary of what is really meant by 'category management' - read it here.

(And the one below that article is pretty cool but too long for here...)

Retailers are fond of discounting, but what exactly is the effect of discounting on profitability? This is an important question because: We are not in the % business, we are in the $ business!

Here is a simple 1-step calculation to determine how many units (quantity) must be sold at the discounted margin in order to make the same $ GP.

Old GM%/ New GM% = Volume Factor

The basic mathematical principle is to evaluate the ratio of GM to Sales.

Consider the following as a base case example to evaluate the scenarios that follow:

You sell 100 units of stock at $10 ea. The cost was $6, leaving a $4 GM.

(Sales= $1000 and initial GM = $400.)

The question is this: What is the impact on profit if I discount my price by x%?

% Change in Price	1%	5%	10%	20%
Profit after discount	$          390	$          350	$          300	$          200
% Change in profits	2.5%	12.5%	25.0%	50.0%

That means that for every 1% increase or decrease in sales, your Gross Margin will go up or down by a factor of 2.5 times. 

It also means that a 20% discount will halve your gross profits (in this example).Scary, right?

So, what to make of this?

• Tread lighly when it comes to discounting. Use it to react to uncontrollablale events (new competition) or to rectify buying mistakes,
  

OR MOST IMPORTANTLY

• Know that you won't get the planned profit but you need your OTB back so that you can buy more stock; so if you have to cut, you must cut early and cut deep. (Make your money on the next purchasing cycle)
  

Boring - but hopefully useful? Or do you prefer more funky topics? Let me know in the comments if you feel one way or teh other.

Have fun anyway.

Dennis

(Are settlement discounts worth it? Read here)

How to sell more... using powerful psychological principles?
I will first explain why it works and then apply to practical sales scenarios on the shopfloor.

One of the most powerful influence strategies is that of Social Proof. We see it every day, we live it every day.
Try this exercise: Go and stand on the pavement and stare up at the roof of a high building without saying anything. People will either not notice you, or if they do glance up and move right along when they notice nothing. But repeat the experimanet with five accomplices, and a crowd will form pretty quickly.

Nobody likes the canned laughter soundtracks that go with sitcoms. The actors don’t, the producers don’t. But the executives insist because time and time again it has been proven that people find things funnier when other people laugh at it – even when they know it is false.

We make fewer mistakes when we do what other people do. It is a powerful shortcut because it has been ingrained in us since we are children.
    Behave yourself Johnny, nobody does that.
    Why do you jump on the couch Johnny, do you see anyone else doing it?
We all want to be recognised as individuals, but we don’t want to be individual enough to be laughed at.

Copy cat serial killers abound. Copy cat suicides are rife. In fact research has proven that when a major/ newsworthy suicide has occurred and has been publicised, suicide rates in that area increase by 1000%.

Cults, clubs, fanatical fans - are all examples of the power of social proof at play. We always look to others for approval because being like others is SAFE.  We act like others do because we don’t want to seem flustered or out of place. Fitting in is an evolutionary survival mechanism, because standing out from the herd will make you an easy prey.

Social proof is especially powerful when the people we are comparing ourselves to or SIMILAR to us. We say we don’t care what other think, but we only say that when others are OTHERS – and we care deeply what people like us think. A mother cares what other mothers think. Teenagers care what other teenagers think about them. Teenagers rebel against their parents but conform to their peers.

Here are three ways (though there are many more) you can use the principles in a retail sales environment:

ONE: When someone walks into the store and you need to create instant rapport, try and be as much like them as possible:
If you a number of staff, make sure the one that is most like the customer serves the customer
If you don’t have that luxury, synchronise your dress, behaviour & speech as much as possible with the customer/ target market

TWO: When explaining to customers something, refer to:
Most popular line/ best seller
All the teenagers seem to buying it

THREE: When trying to up-sell:
Don’t say ‘would you like to look at the match belts’
Do say ‘ most people who buy that bag also consider the belt’

BONUS TIP: When overcoming objections, use the FEEL-FELT-FOUND technique:
I understand that you feel it is somewhat expensive, and other people who felt that way changed their minds when they found that the lower maintenance costs would save money in the long run (for example.)

I have something on the psychology of colour here...
Have fun

Dennis