Compete On Service Not Price.

Amid the reports that Target will report a 43% loss in profits and the reason for that is their lack of focus on price, ie being the lowest, the inspiration for this article arose. In the circle of small businesses that I am coaching, that are friends of mine or advisors to me personally, there is a defined group of businesses that have to compete on price to survive. In fact, in Queens, NY which has a highly immigrant population that in some cases has a culture of bargaining for everything, price can be a very critical thing (especially with inflation and regulations to consider here in the US). For instance, I will never pay the sticker price for a car again and am still kicking myself for a few transactions I’ve made with car dealers where I could have saved more. I am not going to say that bargaining is something we business owners should be doing but will insist that in this day and age it shouldn’t define your business. Identify who you want to sell to and if that customer is big on price, well you have to have good prices or bargain with them at the counter. If your audience isn’t so big on the price- it’s a different story and sometimes it’s the most freeing thing in the world of business. Charging what you want when you want.

Specifically for me, I remember when I first opened how most of the early adopters negotiated price. My favorite thing to this date was this conversation:

Customer: “How much?”

Me: (Price)

Customer: “What? (fake exasperation and devastation) That’s too much! What’s my price? (wink)”

Me: “Uuuuuh, same price I just said?”

Thus began a back and forth of bargaining and in the beginning, I did fall for it. Many times a customer would have an incredible offer for me such as, “I have 3 people that I will bring here if you just give me X price.” I was so desperate to be accepted in the neighborhood and meant well. I would try to appease the bargainers and then the customer would bring the 3 people they referred and those customers would do the exact same thing! Alas, my price was not my price. To them, my then sole proprietorship wasn’t worth anything. There was no perceived value and they took advantage of a green, wet behind the ears dope.

Here’s the thing, the minute I took that price away and raised it then stopped bargaining, those customers went away and the type of customer went away. Yes, sales dragged for a bit, but eventually my customer came in. One that accepted the price, saw the value and understood what we were offering. By then I hired employees and had to teach them that the moment when a customer pushes back on price is not the moment of bargaining it’s a moment where we stand firm.

The price is the price. It’s a powerful way to communicate in an age where commodities are abundant and service is king.

We all know that you have to understand your customer and when I began to understand the culture of my base, I realized that bargaining in some parts of the world is ingrained in the culture. It’s what people grow up with, understand and accept as a part of life. This idea that “the price is the price” is a mostly American capitalist value and sometimes not taken well. Again, being in Queens in the early beginnings of my business and having a decent sample size of my initial customers an fresh batch of immigrant population, this idea was rubbish to some people and “American values” were not theirs. To me, it’s not American values, it’s just a way to do business.

As FUAD I. KHURI states in an article I found dating back to 1969 on the etiquette of bargaining that it’s “as economically favorable.., it breeds hostility, rivalry, and distrust” but also detailing a bit of give and get. Giving something to the customer, such as the gift of compromise or even a gift before the transaction is a type of bargaining on a psychological level. You are opening the doors of trust and if they allow it, a possible transaction. Using my car analogy from the beginning, they give too much in the beginning then light you on fire at the stake in the end. My issue is, the car dealers want you to trust them, but the people themselves that are selling the cars are so untrustworthy that I am suspicious as soon as I walk in the door. Anyone that is my salesperson, smells of 1,000 cigarettes and smoke with a gravely voice packaged in a hastily thrown together suit is not my type of sales person. But that industry breeds those types of people and has a Bazaar mentality. They ready for the bargaining fight, understand the 5th grade math of car leasing better than most people and are looking for the loopholes in your fighting words to make their deal.

Walmart, Home Depot and other superstores have a bargaining mentality. They built businesses on price and continue to obliterate small business margins because of it. Most clothing retail also have to compete on price. Last time I went to Kohls, everyhing was 30% off on top of the 70% off they were offering everything. Last time I checked my 5th grade math, 30% off plus 70% off is FREE. How do you compete with that? It wasn’t free, but damn close. You can’t necessarily open a new hardware store and expect to keep up with Lowes or Home depot sales. It’s a low margin business even lower now that when we think of getting “stuff” for the house we think of home depot not the “hardware store” as we did days gone by. It’s a slow growth industry with Ibis reporting 1.8% annual growth anyway.

Point is this. in the world of $800 Iphones that we all have in our pockets and will run to the store every year to buy, price isn’t king. In your business, depending on the industry, you can have the prices you want to offer as long as you can offer the customers value. You can’t have a retail operation that competes with Walmart on price because they’ve spent more money in one day on burning their brand into our minds (value value value) that you may make this year. You can, however, open a successful boutique that offers a certain quality and service that Walmart doesn’t offer. You’ll just cater to a tiny niche and have a harder time finding your customer.

 

 

 

 

 

How Resistance To Innovation Killed An Industry

With the Grammy Awards on tonight featuring some truly great talent and with the rest just incredible branding and fashion, it’s time for my semi-quarterly takedown and challenge to what was once my industry. I am at my core an artist who likes to perform and teach. That’s why business entrepreneurship and business coaching speaks to me. However, I am an artist that hasn’t bought a CD OR purchased an iTunes song in 6 years. The music industry lost a customer. Why?

Think of any business that sells a product or a service product. How can they survive when their customer stops buying? TomTom, the ingenious navigation hardware that we all bought and used… that is until phone makers started placing them for FREE in our phones. Goodbye TomTom! Now they’ve actually innovated other products quite well to stay in business and more on that here. Anyway, Polaroid, Blockbuster and the list of all the companies that were destroyed because of innovation is getting longer and longer. Innovation is that hand that giveth and taketh away!

Look no further than the music industry, the (now) handful of companies that create products out of artists music and use their own distribution chains to sell it and market it, to be up next. These guys and gals in suits that make the decisions of the business, initially failed to see how resistance to innovation almost killed their business. They fought back against the internet usage of their property. Initially it was probably best from a copyright and a trademark point of view but they failed to see the power of how fast the revolution was changing the BUSINESS. They were busy in the courts (still are) and they had the illusionary comfort of their model and how THEY would win because it was “stealing”. They failed to see any opportunity with it. Their illusion that their CD product would keep their revenue safe for years or the unrealistic vision somehow that people would pay for a virtual CD almost killed them. Thanks to artist innovation, streaming and iTunes-like products they are making a comeback. The industry has a long way to go- revenue is still way down.

The industry experienced a severe downturn with revenues plunging in 2009 50% to 9 billion and only recently getting back to $15 billion in 2015 thanks to the same technology that almost destroyed them. In fact the 3% growth it experienced last year was the largest increase in almost 20 years.

What make the music relevant aren’t the companies that traditionally monopolized the industry or the greed that we are familiar with, it’s the resilience of the artists that make the music and the people that consume it. Music will always be a part of our lives but how? When will the next revolution be? How will a whole industry adapt?

Better question here is how can you take the lesson of innovation that brought down the giants of an industry, ones who were comfortable in the illusion of the lasting identity they had in their product, ones who scoffed at the notion that they would be brought down by a simple idea. How will you apply this lesson to your business? To your product? Will you look for change in the world and embrace the change? Even better, look at the world around your business… all the change around your business that it’s not taking advantage of. Will you incorporate new marketing tactics to your business or still use the old world marketing tactics?  For instance, an astonishing almost half of US businesses DO NOT HAVE websites. How much business are they losing by not simply being on the web? How can they innovate by resisting the fear that is holding them back? Maybe they had a business than sold sneakers and now Amazon is crushing their business. They are still holding on to the old world brick and mortar model and not taking the initiative to make bold steps forward.

Where do you stand? Where does your business stand? Will your business be around when innovation is the hand that take the away?