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Working Harder, Making Less

Guest post by: Dale Furtwengler

Article Overview: Thinking of expanding your business? You may want to learn from the mistakes made by two retail giants.

Working Harder, Making Less

If I told you to:

• Expand into new markets to stimulate growth.
• Dramatically increase your investments in inventory and facilities.
• Accept 15% to 20% lower margins.

You’d probably tell me to take a flying leap. Rightfully so!

Yet that’s the strategy two retail behemoths, Walmart and Target, have chosen by entering the grocery business. According to Value Line reports grocery gross margins have been in the range of 22.5% to 23.7% for the past several years while other retail operations have posted gross margins of 26.5% to 27.2%. Indeed, the grocery margins have been dropping while other retail margins have been rising giving rise to a 20%+ spread between the two margins.

Combine this information with the fact that the grocery business has long been a low margin business with net margins (operating margins) running in the low to mid single-digit range for decades and I can’t help but wonder “What were they thinking?”

I’m a big fan of growth. And while I don’t consider myself lazy, I don’t believe in taking on work that’s going to pay me less than I’ve been making previously. Indeed, much of my success as a consultant comes from showing my clients how to grow their profits without working nearly as hard as they did previously.

If you like that philosophy then here are some tips on growing your business:

• Look first at where you have a decided advantage over your competitors. Why do buyers choose you over your competitors?
• Determine which of your offerings are most profitable.
• Decide what it is about those offerings that your customers value - that cause them to want to pay a higher price to get that offering. Remember you’re selling innovation, image or time-savings or some combination of the three.
• Determine what other purchases these buyers typically make, how much they’re willing to spend on these items and what margins you can expect from selling these items.
• Finally, ask yourself “How does this type of offering blend with our strengths - our competitive advantage?”

As you work your way through the list above, keep in mind the things that your customers enjoy about shopping with you. If it’s image, then remember that image is all about how we feel about ourselves. Atmosphere can definitely enhance or diminish the buyer’s self0-image. If your atmosphere is bright and cheerful, your customers will experience a lift in their mood and some joy in what might otherwise have been a challenging day.

Similarly, a warm, cozy, welcoming atmosphere might provide an emotional respite from the chaos so many of us experience these days. Sprinkle in a few words that give the shopper a reason to laugh and you’ll have won a friend for life.

If you want to take the experience a whole new level, teach your sales staff how to recognize and recall your customers’ names and preferences. When people remember us we feel good about ourselves. We have a sense that we’re special. If we weren’t the person wouldn’t have any reason to remember us? Here’s an experience I had.

Several years ago my brother and his wife took my wife and I to dinner. We stopped in the bar to have a couple of drinks before the meal. Six months later we went back to that restaurant and the bartender said “You like VO and seven.” If blew me away to think that this bartender had trained his memory to recall a customer from a single visit six months earlier. After that I looked forward to seeing this bartender whenever we went to the restaurant and I didn’t mind tipping him a little more for having put forth the effort to remember me and my preferences.

You can see that it doesn’t matter what business your in, people are looking for the experience that makes them feel special, feel valued, feel cared for. Another way to make your customers feel special is to solicit, preferably in person, their input into your future business plans. When considering a new line of products or services say to them “I’ve been approached to offer this ______ line and I can’t quite make up my mind whether or not it’s something my customers would enjoy. I’d really like your opinion. Would you mind giving me your honest assessment?”

This simple technique will help you create a bond with your customers that will be hard for your competitors to break. Indeed, customers will drive out of their way to shop at your place because they feel valued.

Similar results can be obtained when you recognize and satisfy the desires of innovation and time-savings buyers. It’s all about the experience you create.

I’m sure some of you are thinking “These are good ideas, but we just don’t have time to implement them.” My question to you is “Why don’t you have the time?” My guess is that your spending a great deal of time trying to retain customers who don’t really value what you offer. Let go of those customers. Better yet, send them to your competitors and let those customers waste their time. Then use that time to enhance your ideal customers’ experience.

Remember, a company that’s able to get 20% higher prices needs 20% fewer customers, smaller inventories and smaller facilities to generate the same revenues and higher bottom line profits.

The next time you feel compelled to grow, grow up! Grow into higher margins so that you’re not working harder to make less.

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Article Tags: branding, marketing strategies, price strategy, pricing strategy, strategy of pricing, value based



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