Thou Shalt Not Discount

How do you stand out from the crowd? We are going to look at a six-point plan that can help you outwit the competition and keep the customers coming back. The first commandment is what not to do: Thou Shalt Not Discount. Do not do it, even if it seems like the right thing to do. Even if you are desperate to keep your customers from walking off to cheaper pastures. Let us see why.

Joe, the plumber, is building his great business. Suddenly he notices the global financial crisis. He notices that all his competitors are discounting. Joe is a pretty hard worker. He is not working 40 hours a week; he is working 70 hours a week. After his work day, he has to go home and do all of the bookwork. He has to order and pay for all his supplies. He has to manage his team. So he is working 70 hours a week. When Joe sees his competitors dropping their prices he then starts to figure that he is not only going to match them, he is going to beat them. Now let us just see the damage that philosophy will do to his business.

There is an old saying in business: “Turnover is vanity, profit is sanity, cash flow is  reality.” Let us say that Joe’s gross margin is 30%. This means that the difference between cost and sales is 30%. He then gets up in the morning and decides that he is going to be the cheapest in the marketplace. He decides to reduce his prices by 10%. He just thinks that he needs to increase turnover to make up the difference. That act alone means that Joe, who is working 70 hours a week, has to increase by 50% to keep the same gross profit. Joe is now working 105 a week. If his marriage is not in disarray, it will be in destruction mode now. This is what happens. It is insane.

Instead, you need to increase prices. Here is a couple of reasons why you should do so. First, let us just say that the inflation rate is 4%. That means that at a minimum you should be increasing your prices by 4%. If you do not, in real terms, you are going backwards.

Second, you need to create value so that you can increase your prices. I want to give you six real simple strategies or tips to help you do this.

  1. Have a unique selling proposition. A unique selling proposition means that you stand out from the crowd. What makes you stand out? One of the best ways to stand out is to be able to solve your customer’s problems.

    Twenty years ago there was a unique selling proposition that transformed the pizza industry. This pizza company was called Dominos. Because Dominos was such a small company, it highlights well the power of a unique selling proposition. The owner of Dominoes kept on picking up the phone and do you know what the first request of most of the customers was? It was not the cost of the pizza is was how long does it take to be delivered? Most of the people that were phoning up were just coming home from a long day in town. They were famished. They didn’t care about the quality of the pizza. All they cared about was “how long?” He knew that if he could solve that problem and then market that solution, he would become the number one pizza company. Do you know how he did it? They offered one unique selling proposition. “30 Minutes or it is Free.” They had it for nine years, and it was such a dominate message that it creamed the competition.

  1. Educate you customers on value, not on price. Educate your team on value, not on price. Teach your team not to order takers but to be problem solvers. Train the customers and train your team.
  1. Warranty, Guarantee or finance package. One of the fundamental strategies of how you can increase your price is to sell an intangible. For example, did you know that in any electrical retailer, the real money is not made in selling the product; it is in selling the extended warranty. They make more money in selling the extended warranty then in selling the fridge. Once you have bought the product, you are open up to the possibility of buying something else. It is the same principle that McDonalds uses when they say, “Do you want fries with that?” 50 Percent of people will say ‘yes.’ You need to add an intangible to your business to increase the price and to have a real profitable area of the business.
  1. Stock higher price products. Why? Not because you want to sell them, but let me tell you what happens. Let us say that you have come into my business and I had a very high priced product and I showed that one to you first. Here is what happens, you say, “Oh no, I cannot afford that.” Then I say, “Well, you do not want the cheapest, do you?” You say “no.” So, guess which one you buy? The one in the middle. If you do not carry the high-end produce, which one will he buy? The cheaper one.
  1. Status symbols. Create an aura around your product. People are not just buying the product; they are also buying what the product represents. They are buying the image that is associated with that product. People are willing to pay three times as much for the same product - the same product that is manufactured in the same factory but is three times more expensive – because the brand reflects their personality, their status and their values. We live in a society that craves to be famous. Feed that craving with status symbols.
  1. Create a quality image. Your image is not just your marketing literature. It is your speech. It is the way you pick up the phone. It is your uniform. It is the haircut of your staff members. It is their breath. It is everything. That is marketing. You have to live and die by the 3-second rule where the client, then and there, decides if he will buy from you based on the first 3 seconds of that interaction. The key question is: How is that interaction occurring and what is the perception that the customer is getting during those three seconds?

Take these six principles and apply them in your business and remember that “Thou Shalt Not Discount” and you will build a successful business even in economically challenging times.

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