AN ALTERNATIVE TO PRICE DISCOUNTING
by Martin Grunstein
It seems that in the face of competition, the response, in almost all of the 100 industries I’ve spoken to, is to either match the price or lose the sale.
Not only is this bad for your profitability (and there is evidence of this margin erosion in so many industries, for example the retail margin in the IT industry on many products has gone from over 40% to single figures in the last 15 years), it is bad for your future profitability - because all the people who have screwed you on price refer their friends and colleagues who expect, and get, the same cheap prices.
Where does it stop?
Well, in a lot of industries it hasn’t stopped and the results are a lot of people going out of business in the last ten to fifteen years.
But a story I was once told in the hairdressing industry gives the insight into how to turn things around and it applies to any person selling products or services in any industry!
There was a hairdresser in a small US country town charging $25 for haircuts and doing brilliantly because there was no competition in the town.
One day a competitor opened a salon directly across the road with a big sign in its window saying “$6 HAIRCUTS”.
The first hairdresser was rattled. He thought it through and realised that if he kept his price at $25, he’d lose a lot of his customers to his competitor and he may not get them back BUT if he dropped his price to $6, he may eventually drive this guy out of business but he’d go broke himself because he couldn’t afford to take $19 off his margin.
If you disregard the industry and the price difference, I believe most businesses in this country think they would have to either match the price or lose the sale.
What the US hairdresser did, that worked outstandingly well, that we can learn from, was this. He kept his price at $25 and put a big sign in his own window that read “WE FIX $6 HAIRCUTS”.
And I tell Australian businesses day after day “that’s what YOU do for a living”!
Isn’t the easiest sale you ever make the person who comes to you complaining about the poor service of your competitor? Just smile and take the money.
The trouble in this country is that we fix $6 haircuts for $6 when we should be charging $25!
How do you fix “$6 haircuts” in your industry?
How about returning phone calls promptly?; how about telling people about your extensive experience in the industry so you reassure them you’ll be around in the future?; how about guaranteeing your products and services so the customer is never taking a risk in doing business with you?; how about testimonial evidence of past satisfied clients so there is credibility in the promise you make of a good result?; how about offering personal accessibility so that your customer can contact you when they need to even if it’s outside business hours (they will very rarely contact you outside business hours but the value is in the offer, not the delivery)?; how about the range of products and services you offer making your business a “one stop shop” rather than making the customer waste time going to other places; how about profits stay in Australia rather than going overseas?
There are literally dozens of ways you fix $6 haircuts every day of your working life. The trouble is we don’t communicate these to the marketplace and and then we wonder why people come in and screw us on price.
Before your prospective customer threatens to get a “$6 service” instead of doing business with you, tell him all the things he gets for free with his “$25 service” and make the $6 service look like a risky proposition for the customer - which it is because despite the proliferation of discounting in almost every market, most people still believe “you get what you pay for”. Unfortunately, most businesses don’t tell them what they get in the offer that they DON’T pay for to help the more expensive offer compete.
Think about it.
In my business I offer twelve months marketing consulting, FREE OF CHARGE, to all the clients that book me to speak (even for a single presentation). I will write articles for their newsletter; I will be accessible to anyone within the company who needs my advice on implementation of the things we have discussed at their conference; I will critique the work they do at the conference as a result of my session and keep working with them till what they present to the marketplace is excellent. And all of this is free of charge.
Now, like you, I have prospective clients trying to get me to discount my fee by saying things like “how much is the seminar without the consulting?” and my answer is simple and the same every time. “I DON’T SELL the seminar without the consulting because I’m selling a result, not just a presentation”. The consulting is just as integral to my offer as the preparation of my presentation.
I have a client in the W.A. building industry who gets approximately 8% more than his competitors by offering a home with a fixed price guarantee so that the client never has the price blow out due to unforseen circumstances (which are pretty common in the building industry) - he is selling RISK MANAGEMENT. I have a client in the real estate industry that has increased his earnings by 16% in one year by implementing a service guarantee with default. That is, if this real estate company doesn’t return your phone calls within two business hours or breaks any of its promises that it makes to you when you give them the listing, they refund $200 from their fees every time they let you down - they are selling STRESS MANAGEMENT; I have a client in the Victorian grocery industry who is more expensive than the major supermarkets but they have a Community Benefit Card which means they advertise that they donate 1% of their total turnover every month to charities and schools of their customers’ choice. Are they doing well? You bet, having donated over $4 million to charity. They are selling COMMUNITY SPIRIT.
Please brainstorm all the things YOUR customers get that are included in the price of your products or services and communicate these BEFORE they make their purchase decision. Why do we have to wait until a customer gets a $6 haircut before we fix it?
Not only is prevention better than cure, it’s more profitable!
Martin Grunstein’s results with over 500 Australian companies across over 100 industries has made him Australia’s most in-demand professional speaker on Outstanding Customer Service. He is contactable by phone on (02) 96623322 or by email at firstname.lastname@example.org.
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