Why the best marketing tactics may fail to produce results.
October 4, 2007
Lately, in my work with individual clients, the issue of marketing TACTICS keeps coming up.
One client in particular is fond of taking free teleclasses with various marketing experts. She listens, she takes notes and then she sets out to implement these marketing tactics in promoting her business. The problem is, most of the marketing tactics she’s using are to promote MINOR SALES instead of the MAJOR SALE she is making.
Let me explain…. Neil Rackham’s book SPIN Selling, he breaks the sales that businesses make into TWO separate categories: Major Sales and Minor Sales. (I outline the basics of these two types of sales in my book, Beyond the Niche: Essential Tools You Need to Create Marketing Messages that Deliver Results
Basically, a Minor Sale is just that. It’s a low cost, low emotional investment type of a purchase. If you’re selling e-books then you are making a MINOR SALE. If however, you’re wanting to be hired as a consultant, well then that places you smack dab in the middle of the MAJOR SALE. A major sale is a high cost (emotional and/or financial) type of transaction. One of the characteristics of a Major Sale as defined by Rackham includes the possibility of continued interaction AFTER the sale is made.
My client, a consultant, is taking notes at these free seminars and wanting to implement these MINOR SALE marketing tactics to promote her MAJOR SALE consulting practice.
Which is what brought her to MY practice in the first place. She couldn’t understand why she was doing all the "right" things when it came to marketing her practice, yet wasn’t seeing results.
Remember, TRUST is a key factor in making the major sale. Your goal, if you’re making a Major Sale, must be to build trust with your potential clients.
Which is precisely the reason I ADORE self hosted blogs for independent professionals engaged in making Major Sales. Define your audience (your potential clients), establish what they need to know and then communicate it to them via your blog.
The long term value of a customer
September 18, 2006
Or, how much is your customer worth over the long haul.
The past few weeks have been more than a bit trying around here. In addition to getting ready to publish my book Beyond the Niche: Essential Tools You Need to Create Marketing Messages that Deliver Results, I’ve also had the added stressor of sending my oldest away to college.
Last night, after spending the weekend at home, as my daughter headed back to college, she experienced car trouble….AGAIN! Her 1999 Chevy Prism is suffering from spending the first six years of its existence in the harsh climate of Northern Indiana and Southern Michigan. This time the bracket that holds the exhaust let loose thanks to a well timed jarring while traveling through construction on the Florida Turnpike. The whole incident brought to mind the topic for the day: the long term value of a customer.
The story of our search for an auto mechanic contains a valuable lesson for everyone in business, but especially those who are making intangible major sales, or are in a service profession.
See, when we moved 1300 miles to our new home, we found ourselves having to find everything new. From dentists, to hair stylists to a reliable auto mechanic, our first 18 months down here were spent in trial and error. Our search for an auto mechanic was unfortunately our first search after moving. Despite knowing better, we began by taking the car to the nearest Chrysler dealership. My husband had heard good stories about their body shop, so we gave them a shot. Maybe car dealership service departments down here weren’t the houses of ill-repute they were back home.
I don’t know if it was the fact that the car was brought in by a woman or if they just treated everyone who walked in as if they had S-T-U-P-I-D tattooed on their forehead, but when the mechanic called me and told me that the car needed $1200 worth of repairs, I was shocked. Did he think I just fell off the turnip truck? I issued my standard reply to car people who try to screw me: “Forget it. I’ll have my father take it to the sale. He’s a wholesaler.†Without exception, this sends the would-be thief into a stammering fit, while he tries to back pedal because he sees that not only do I recognize that he’s trying to gouge me but now he’s going to lose the chance to do ANY business with me. Obviously the Chrysler dealer figured out a way to get theirs in this situation. They charged me $85 for their “diagnosisâ€. Yes, I was charge $85 for refusing to allow them to screw me and I have to admit, I was amazed.
The reason I was amazed was simply my point of view. See, from where I operate, what I saw was a potential customer, the owner of a 7 year old Chrysler van. In my way of thinking, I’ve got a chance at landing a long term customer. If I treat her right today, maybe she’ll be back tomorrow to trade that bucket of bolts in on a shiny new model. That wasn’t the view the dealership chose to take. These idiots were more interested in squeezing $1200 out of me for unnecessary repairs in that moment than in establishing a relationship with me that would mean not only future repairs for the service department but also a possible customer for another van in the near future.
As I left the dealership I passed a repair shop that was off the beaten path.The name of the shop was “Dave Fixes Cars.†I decided to give Dave a shot. Dave replaced the offending belt and only the belt for a reasonable price. I was so thrilled; I wrote him a check for double the amount. A few weeks later when my daughter’s Prism started acting up, guess who we called? That’s right Dave.
Oh and three months later, after and a few more trips back to Dave, when I decided that it was time for a new van, guess where I went to buy my new van? That’s right, anyplace BUT the Chrysler dealer! No amount of advertising that the dealership does will EVER repair their relationship with me or my family. Not only that, but my husband made sure to spread the word where he works as well. Now that’s the kind of “word of mouth†advertising that I don’t want for my business and you shouldn’t want for yours.
Today, when my husband and I dropped my daughter’s car off for its THIRD visit to Dave this month, I told Dave that we’re considering naming the car, “Dave’s Financial Security.†He laughed. Over the past 18 months, we’ve written enough checks to Dave that he’s made more than the original repair estimate from the Chrysler dealer. (We’re a three, soon to be four car family.) Not only that, but when the Prism needed body work, I asked Dave for advice on where to take the car for body work. He was happy to refer me to a friend who now has earned my undying gratitude for his reasonable and sensible attitude towards his business.
Both Dave and Billy (the body man) both realize that a long term customer is a beautiful thing. Not only do they return time and time again, but they also refer their friends. I can’t begin to count the number of people my husband and I have referred to both Dave and Billy. Oh, and when I need ANYTHING done, whether it’s related to my car or my home, I’ll be asking Dave or Billy who THEY recommend!
As for the Chrysler dealer, well I have noticed that very few Chrysler products are sporting their sticker on the back of their car. The Chrysler dealer should be grateful that on average 1500 people are moving to our city every month because I cant see how he could stay in business any other way.
I’m amazed because I would think it would be common sense. Gaining a new customer is expensive which means the most effective way to run a business is to try to KEEP your current customers and use your marketing and advertising to get more customers who will also remain loyal to your business. If you’re using your marketing and advertising dollars to try to replace your current customers … well, maybe you should quit advertising and find out why you’re losing customers. Just my .02 worth.
Price sensitivity in the Minor Sale and optimizing profits for retailers
June 23, 2006
I was pleasantly surprised to read in Forbes magazine a story about an up and coming software suite that allows retailers to use price optimization to boost sales and profit margins.
Demand Tec has developed software that gives retailers insight into underlying factors in the purchasing decision. For example, one drug store chain used the software program to recognize that buyers seeking cough medicine aren’t likely to shop around. The store raised prices on cough syrup as a result. The software also provides other insights, such as customers who are buying cold medicine also purchase chicken soup and tissues in the same visit. The software then recommended that tissues and chicken soup be moved to the cough syrup aisle.
The software can’t recognize external trends, such as a new Wal-mart opening down the street, but it does help pull retailer’s heads out of the spreadsheets and get them to focus on their customer and why they’re visiting a particular store. One store implemented the software suggestions and increased the price of diapers for newborns while cutting the price of diapers or “pull ups” for toddlers. The pricing move boosted revenue for baby care by 27%and increased the category’s gross margin by 2% after a year!
For those of us who avoid spread sheets when possible, it’s rather obvious the reason why parents of toddlers are more price sensitive than parents of newborns. In the months following the arrival of a new baby (or babies), time is second only to sleep in the precious commodity category. As time goes by and the number of diapers bought and changed multiplies exponentially on a weekly basis, it makes sense that the parent of a 28 month old might be willing to shop around for recurring minor sale expenditure such as diapers.
Which brings us to the door buster theory in Beyond Niche Marketing, the book? It’s all about merchandising. Realizing why customers are coming to you and placing your merchandise accordingly. For example, the article at Fortune notes that a drug store positioned tooth-whitening chewing gum to sell along side with the stores other chewing gum offerings. The software suggestion was to move the tooth whitening gum to the oral care products aisle. When positioned next to the whitening toothpaste and tooth whitening strips, sales of tooth whitening gum increased significantly.
While it’s great to have a software tool that can “think” for you, there’s still no substitute for a real live human being stepping into the customer’s shoes and viewing the shopping experience from the other side of the cash register. The definition of the Minor Sale is that it’s a purchase that doesn’t justify a huge expenditure of time and effort researching alternatives. Because the software can only make suggestions. the humans who run the business have to pick and choose which software recommendations make sense for their customers.
Choosing the right loss leader product
June 2, 2006
The definition of a Loss Leader item is something that you’re selling at or below cost and heavily promoting. It doesn’t matter how you promote it. You can use any combination of via Pay per click, newspaper or purchase air time on radio or television, the tactic is to slash the price of a single item and then promote it like crazy to get attention in an over crowded media marketplace. In “Beyond Niche Marketing” the loss leader promotion illustrated in the book involves drug stores selling milk.
A conversation with my mother, of all things, brings the loss leader marketing tactic and brought to mind the type of product that should NEVER be featured as a loss leader.
My weekly call to my 70 year old mother last week finds her shopping online for “stevia”. Stevia is an herb that’s advertised to be “sweeter than sugar”. It’s non-caloric and is a favorite among diabetics and dieters. My mother is a life long member of the latter group and is still fighting the fight to fit into her wedding dress some 45 years later.
So our tale begins in the middle of rural Indiana, where there’s a 70 year old woman who is frustrated by the fact that a few months ago she purchased Stevia online for approximately $4.00 per box and now she can’t find it anywhere at that price. She had searched the web store where she made her original purchase and, at the time of my call, had abandoned that search and headed out in the wilds of the internet in search of Stevia for $4.00 per box.
In an effort to make conversaion, I began explaining to my mother that the fabulous $4.00 per box purchase price was probably a “loss leader” promotion. The business in question probably purchased a Google Adwords ad which my mother clicked upon, found the herb offered at an INCREDIBLE price and, as a result, she bought 3 boxes. The promotion was over and my mother should abandon her quest and get back to our conversation.
My mother wasn’t having any of that. (Tell me you don’t have conversations like this with your mother too.) What she did care about was she had bought Stevia at $4.00 per box three months ago and by gum, she wasn’t going to pay twice that much for it now.
The conversation with my mother ended but it got me thinking it was time to explore the topic of why some products SHOULD NEVER be used as loss leaders.
In economics, DEMAND is the amount of a good that consumers are willing and able to buy at a given price. According to Biz Ed, there are 5 factors that come into play which affect DEMAND for a good:
1. the price of the good;
2. the income of consumers;
3. the demand for alternative goods which could be used (substitutes);
4. the demand for goods used at the same time (complements);
5. whether people like the good (consumer taste).
We could spend weeks on this topic, so for now we’re going to focus our attention on the third item from the list, the demand for alternative goods which can be used as substitutes.
When there are a LOT of alternatives for a good, then the demand for that good is said to be elastic. Conversely, items that don’t have acceptable alternatives or substitutes are said to be inelastic. Think of rubber bands. Big fat thick ones with very little give are inelastic -vs- thin rubber bands with LOTS of stretch are elastic.
Gasoline is a product whose demand is INELASTIC. It’s rubber band is very thick and very “no-stretchy”. This is because there is no substitute product for gasoline. Our cars are built without alternatives in mind, so the demand for gasoline is said to be inelastic.
While gasoline as a product has demand that is very INELASTIC, which gas station you use to fill up your car is HIGHLY elastic. If station “A” is offering gas at $2.86 a gallon and right across the street, station “B” is offering gas at $2.96 per gallon, which gas station is going to have customers lined up around the block? This is because demand elasticity for individual gas stations is very ELASTIC.
1. When you’re choosing a loss leader product, be sure to choose one that has inelastic demand.
Milk is the example used in the book as a potential loss leader product. Milk is considered inelastic because there are no good substitutes, it is a necessity to most people, and it represents a small proportion of most people’s weekly food budget.
While there are other substitutes available for milk, try mixing any of them with chocolate milk mix and see if your 5 year old doesn’t notice the difference immediately. The demand for milk is said to be inelastic because substitutes are more expensive and not easily slipped by without notice on the typical 5 year old’s palate.
Back to the web store selling stevia. This web company made an obvious mistake by featuring as a loss leader a product whose demand is highly elastic. While my mother prefers stevia to other sugar substitutes, when the price doubled, she quickly abandon her search for stevia and headed straight to the little pink/yellow/blue packets of artificial sweetener offered at her local Supercenter.
2. Make certain you stick with your loss leader campaign long enough to establish your relationship with your customers.
Unfortunately, the herb web company positioned itself as a commodity broker of herbs. They won the battle by momentarily offering the lowest price but they lost the war. When their customer returned and found the price had doubled, she beat a hasty retreat. The loss leader promotion not only failed to win a customer, it garnered her ire and she’s now calling her other herb consuming friends complaining about the injustice suffered at this site.
The online herb broker tried a “quick hit” campaign, toying with the idea of offering a loss leader. Not only was the demand for their PRODUCT very elastic, but the demand for their STORE was also very elastic. In other words, not only were there lots of acceptable substitutes for the PRODUCT but there were also lots of acceptable substitutes FOR THEIR STORE.
This is a lethal combination.
Pat attention to what your local grocery store does in promotion. Your local grocery stores are most certainly the local JEDI MASTER of the minor sale. If you’ll notice, when your local grocer runs a loss leader product, the ad copy will usually specify, “Limit 2 with $20 purchase” or something to that effect. They frequently implement the loss leader marketing tactic as a way to maintain their market share.
Watch your local grocer’s marketing efforts and see if you can point out the “loss leadersâ€. While the loss leader products may change, the strategy doesn’t. Notice that most grocery stores are carefully positioning themselves as selling a lot of PRODUCTS who have high demand elasticity but the stores are carefully moving themselves into a position of low elasticity. In other words, you probably have a favorite grocery store and it’s because that store has done something to position itself as your favorite. Whether it’s the fresh seafood, the olive bar, the selection of exotic produce, or the deli selection, your favorite grocery store is doing everything it can to position itself so you won’t travel 10 minutes down the road to the next grocery store.
The online herb store, on the other hand, didn’t do anything to “hook” their customer. When they abandoned their loss leader tactic, there was no reason to shop there anymore. By not designing their web store to encourage add on purchases, they set themselves up for failure.
So use caution when choosing your loss leaders for your minor sale campaigns. On the web, set up your shopping cart to offer “customers who purchased “X” also bought..” messages. Amazon, the Jedi Master of minor sales on the web, combines this strategy with offering free shipping for orders over $25.
On or off the web, make sure your customers know the loss leader product is being offered at a special sale price and when the promotion will end. It’s good to rotate staple products as loss leaders to keep customers coming back for more. Just make sure the offer is clearly defined and if necessary, clearly spell out the conditions of the sale. You’ll find your customers won’t mind buying $20 worth of merchandise to save $2.00 off of a $6.00 product and you’ll find that loss leaders can indeed make a profitable contribution to your bottom line.
The Loss Leader tactic is a classic promotion for businesses making minor sales. Just make certain you’re committed to the strategy before you begin.
