RetailSmart

When vendors offer (cash) discounts for early payment, it is important to do the maths to ascertain whether it is worthwhile. Whilst a 3% discount may seem trivial, it can represent significant savings.

The $ amount saved should be seen as ‘interest’ paid to the retailer (by the vendor) for the ‘loan’ which amounts to the net amount paid by the retailer – for a certain number of days.

A retailer buys merchandise with a list price of $1000. If the term is offered as 3/10 n/30, it means that the full amount is payable in 30 days from the invoice date, but 3% discount is offered if paid within 10 days.

Let’s assume that the invoice is dated 5 June – which means the full amount is due 30 days later on the 5^th July. If, however, it is paid by the 15^th of June, the retailer is entitled to a 3% discount. The vendor is offering the retailer 3% discount to pay the account 20 days earlier than usual. [Because the vendor gets the money 20 days earlier, they will pay interest on being able to use the money for the 20 days.]

It is calculated as follows (for the above example):

(Amount Saved/ Net Amount Paid) x (365/No of Days Saved)

Amount Saved 3% x $1000 = $30

Net Amount Paid $1000 - $30 = $970

No of Days Saved 20 days

Substituting in the formula, the ‘interest paid’ by the vendor:

($30/$970) x (365/20) = 56.4%

The annualised rate of interest (i.e. saving to the retailer) is 56% - which is a great deal better than leaving the money in the bank for an extra 20 days. [Where it would have earned say 10% per annum; which equates to about $5.48 for the 20 days as opposed to $30 as per above.]

These numbers are realistic and the situation often presents itself. This means that it is usually a good deal to take the early payment option. But please note that there is an assumption that this the best use of funds. Retailers must consider alternative uses and cash-flow impacts as this illustration simply compares the early payment option with the alternative of a bank deposit.

One of the most powerful influence strategies is that of Social Proof. We see it every day, we live it every day.
Try this exercise: Go and stand on the pavement and stare up at the roof of a high building without saying anything. People will either not notice you, or if they do glance up and move right along when they notice nothing. But repeat the experiment with five accomplices, and a crowd will form pretty quickly.

Nobody likes the canned laughter soundtracks that go with sitcoms. The actors don’t, the producers don’t. But the executives insist because time and time again it has been proven that people find things funnier when other people laugh at it – even when they know it is false.

We make fewer mistakes when we do what other people do. It is a powerful shortcut because it has been ingrained in us since we are children.
Behave yourself Johnny, nobody does that.
Why do you jump on the couch Johnny, do you see anyone else doing it?
We all want to be recognised as individuals, but we don’t want to be individual enough to be laughed at.

Copy cat serial killers abound. Copy cat suicides are rife. In fact research has proven that when a major/ newsworthy suicide has occurred and has been publicised, suicide rates in that area increase by 1000%.

Cults, clubs, fanatical fans - are all examples of the power of social proof at play. We always look to others for approval because being like others is SAFE.  We act like others do because we don’t want to seem flustered or out of place. Fitting in is an evolutionary survival mechanism, because standing out from the herd will make you an easy prey.

Social proof is especially powerful when the people we are comparing ourselves to or SIMILAR to us. We say we don’t care what other think, but we only say that when others are OTHERS – and we care deeply what people like us think. A mother cares what other mothers think. Teenagers care what other teenagers think about them. Teenagers rebel against their parents but conform to their peers.

Here are four ways (though there are many more) you can use the principles in a retail sales environment:

ONE: When someone walks into the store and you need to create instant rapport, try and be as much like them as possible:

• If you a number of staff, make sure the one that is most like the customer serves the customer
• If you don’t have that luxury, synchronise your dress, behaviour & speech as much as possible with the customer/ target market

TWO: When explaining to customers something, refer to:

• Most popular line/ best seller
• All the teenagers seem to buying it

THREE: When trying to up-sell:

• Don’t say ‘would you like to look at the match belts’
• Do say ‘ most people who buy that bag also consider the belt’

FOUR: When overcoming objections, use the FEEL-FELT-FOUND technique:
I understand that you feel it is somewhat expensive, and other people who felt that way changed their minds when they found that the lower maintenance costs would save money in the long run (for example.)

Most marketing knowledge has been built around products and services. Place marketing has been somewhat of an intellectual orphan. Retailer can learn from place marketing principles because shops are places too.

Place marketing an approach that we call ‘Authentic Marketing’. It is not about labels or buzzwords, but a simple statement of philosophy.

Authenticity is about creating experiences that are real and honest (not cynical). It is about people…and community, and it is about what they value… not what just they buy.

The diagram identifies the four key components of the marketing function and demonstrates that it revolves around the customer experience. For this approach to work, two critical preconditions must be met:

Firstly, the entire corporate system must believe in the customisation of the customer experience. From research methodology, to concept; through development and delivery of the operational asset; all efforts are focussed on creating a unique place. A place that responds uniquely to that particular community.

Secondly, the organisation must have the vision to embrace the importance and validity of social and environmental returns as much as economic returns. That is the only way to create truly sustainable returns.

Positioning

This positioning exercise is heavily reliant on research and a deep knowledge of the market. The place must occupy unique positioning, maybe as an edgy place – which is then supported by the product offer which is then finely balanced to deliver that unique experience.

Attraction

This particular marketing function is often perceived as the only job a marketer must do – to drive visitation and then consequently retail sales. Marketers often submit to that pressure by simply (and exclusively) organising events and promotions. It is understandable, because there are easily measurable KPIs that demonstrate the short-term effectiveness of a specific promotion.

Place Management (interaction)

Making a ‘place’ come alive is a particularly challenging function. You can’t ‘buy’ a vibe with a few events. The term ‘place management’ as applied to shopping places captures the essence of what we strive for. This is the function where people demand authenticity. They won’t create lively spaces if the place does not resonate very clearly and closely with what the customers want.

It must become a space that has real community value that transcends the programmed elements that are designed to activate the space. How the community uses that space is constantly evolving and it takes real marketing nous to manage that evolution.

Community Engagement

The final piece of the marketing puzzle is about connecting with the community. This is about people as community members as opposed to people as consumers. Community Engagement is about loyalty and retention and you should track and measure commitment levels as a key indicator; but it is more importantly about creating an environment that is rich in social capital.

RED: warmth, love, anger, danger, boldness, excitement, speed, strength, determination, desire, courage ORANGE: cheerfulness, low cost, affordability, enthusiasm, stimulation, creativity YELLOW: attention-grabbing, comfort, liveliness, cowardliness, hunger, optimism, overwhelm, Summer, comfort, liveliness, intellect, happiness, energy GREEN: durability, reliability, environmental, luxurious, optimism, well-being, nature, calm, relaxation, Spring, safety, honesty, optimism, harmony, freshness BLUE: peace, professionalism, loyalty, reliability, honor, melancholia, boredom, coldness, Winter, depth, stability, professionalism,  honor, trust PURPLE: power, royalty, nobility, elegance, sophistication, artificial, luxury, mystery, royalty, elegance, magic GRAY: conservatism, traditionalism, intelligence, serious, dull, uninteresting BROWN: relaxing, confident, casual, reassuring, nature, earthy, solid, reliable, genuine, Autumn, endurance BLACK: Elegance, sophistication, formality, power, strength, illegality, depression, morbidity, night

[Can't remember where I stole this from ]

Some recent research conducted by Janiszewski and Uy has focussed attention again on the notion of psychological pricing. Are we really fooled when storekeepers price something at $9.95 instead of a round $10?
Their experiments used hypothetical scenarios, in which participants were required to make a guesstimate the wholesale cost when told:

• The retail price
• The retailer had a reputation for pricing TVs competitively.

Scientific American explains it as follows:
One group of buyers was given a price of $5,000, another was given a price of $4,988, and the third was told $5,012. They found that those with the $5,000 price tag in their head guessed much lower than those contemplating the more precise retail prices. That is, they moved farther away from the mental anchor.
People appear to create mental measuring sticks that run in increments away from any opening bid, and the size of the increments depends on the opening bid. That is, if we see a $20 toaster, we might wonder whether it is worth $19 or $18 or $21; we are thinking in round numbers. But if the starting point is $19.95, the mental measuring stick would look different. We might still think it is wrongly priced, but in our minds we are thinking about nickels and dimes instead of dollars, so a fair comeback might be $19.75 or $19.50.
The researchers also looked at five years of real estate sales and found that sellers who listed their homes more precisely—say $494,500 as opposed to $500,000—consistently got closer to their asking price. That is, buyers were less likely to negotiate the price down as far when they encountered a precise asking price.

All of this just goes to show that, despite the fact that customers say they ‘know’ that $9.95 is really $10.00, they are still influenced by the psychology.

It is also interesting to note that Wal-Mart employs prices like $12.84 and other odd, yet precise price points.

A little pick-up truck (“Ute”) drove past me today. Name of the business: ‘Complex Solutions’. That would be kinda the opposite of what I want.

Why not: Simple Solutions

Sign at the coffee shop entrance in a busy mall. ‘Come and in and see our extensive menu.’ Extensive OR Expensive to the hurried eye perhaps?

Why not: See our BIG menu?

Countertop signage on the coffee shop tables in the mall walkway are placed at 90⁰ angle to passing traffic.

Why not: Placed at 45⁰ to (at least) give people a shot at seeing it.

The menu board in the coffee shop lists 5 options (flat white, latte, cappuccino etc) – all priced at $3.00. A lot of noise & clutter & space consumed for overwhelmed consumers.

Why not: Any Coffee - $3

In the window of a book store the new Wilbur Smith novel is offered at 69% discount. Seriously – and you can calculate that?

Why not: Save $20

Can you read this?

Of course you can’t read that. But that is what people do when they make menu boards, posters etc with 3cm letters – and expect customers to read it from 5 meters away.

Why not – indeed.

Retail is detail. As is success.

How to Discount without destroying margin

The following steps/ checklist should be applied before a product is discounted. Too many retailers are lazy marketers and resort to discounting as the first (and only) option when more often than not discounting is just an exercise in margin destruction. Discounting is a race to the bottom – and inevitable unprofitability. Unless your retail format relies on high volume/low margin sales, discounting should only be part of strategic retail promotions.

Beware the tipping point.
Will this particular round of discounting be the tipping point that changes your retail image in the mind of your customers? If you do it too frequently, you will permanently damage your brand and positioning. Even Mercedes resort to discounting, but few people wait for the discounts to buy – unlike some retailers who shall remain nameless.

Does your market consider price as important?
Discount shoppers rate price highly. Non-discount shoppers look for value in service, quality and store attributes. People are not as price-conscious as you may think, so it does not make sense to give margin away when you don’t have to.

The sanity check
Is the stockturn below benchmark? ONLY discount if the product is not moving. The primary purpose of discounting is to get your cash back. This works by attracting more customers to your store and consequently selling more product. If you are moving stock at the benchmark volume, then discounting is usually value destruction.

If you are satisfied with your responses to the above 3 criteria, then:

Choose the right product

• Choose products with high elasticity. [Divide %Change in Quantity by % Change in Price.)

If the PE > 1 the product is relatively elastic. An increase in price would result in a decrease in revenue, and a decrease in price would result in an increase in revenue.

If the PE < 1 the product is relatively inelastic. An increase in price would result in an increase in revenue, and a decrease in price would result in a decrease in revenue.

• Choose products that are KVIs

Consumers seldom have a high level of comparative prices, except in basic foodstuffs and general commodities. Typically, most consumers would know the prices of a few ‘reference’ items. These items are termed KVIs (Known Value Items.)

• Pick the right markdown %

Perception of savings depends upon the way in which the price is presented. Discounts of 10% or less have little effect on consumer responses. Small discounts usually fall below the perceptual threshold – popularly referred to as JND: Just Noticeable Difference. Retailers are their own worst enemy in trying to stimulate sales with small discounts. (This works only on very high value items – for instance 10% discount a new vehicle would be significant, but it is nothing for a t-shirt.) A small discount is counter-productive: it simply lowers the consumer’s price image for your store, creating expectations of lower prices without actually adding (sufficient) unit sales.

You have heard the stats about how 1 annoyed customer will tell 7 others?

Well, I told 80. As it goes with bad service and outright systemic stupidity, I regaled my MBAs at MGSM with the story of Dell Hell. It started when a major blogger in the US used his blog to slam Dell for their poor response to his problem. (Read Jeff Jarvis’s tale here.)

Back story: My Dell Hell

• Bought a laptop from Dell some 9 months ago.
• Wife drops laptop – shatters screen.
• Call Dell, they quote me $2,500 to repair.
• I rant & rave and tell them how ridiculous that is when I bought the laptop for $1200.

I used this as an example of how very large successful companies don’t ’get’ marketing.

Unbeknownst to me, I had a Dell employee in the class. He took it upon himself to investigate and took great pride to report back the following week on what should have happened. I then received a flurry of emails and a phone call from Dell. I was quoted about $500 or $600 or thereabouts to have screen replaced – and an extended warranty. I was assured that I wasn’t being given any special treatment or price – and I then agreed to have the screen replaced.

• Two days later, technician arrives, replaces screen.
• Follow-up email and survey.

The Present: Dell Heaven

The battery life has been a bit suspect, but with the laptop being out of action for several months and when used, it was only for short stints and usually on AC power. I have been meaning to have it fixed, but somehow don’t get around to it.

• Get email reminder that the warranty will be expiring soon.
• Phone Dell and report that battery lasts less than 1 hour.
• Replacement battery delivered the following day.
• Included was a pre-paid, addressed courier satchel to return faulty product.
• Next day, I receive this email. (Note the tone, content, and even the ‘bumf’ at the bottom…)

Good day Dennis,

How’s it going, mate? This is a quick email to enquire whether the case reported on April 14^th 2008 involving the replacement battery has been resolved to your satisfaction.

If it has, do I have your agreement to close this case from my end?

At the same time, do let me know whether the faulty part has been collected?

If there is anything else I can assist you with, please do not hesitate to contact me.

Thank you and have a pleasant day.

Warmest Regards

Lim Haan-Yu

Technical Support Analyst

Global Commercial Support Services

Australia toll-free 1-800-633-559

New Zealand toll-free 0-800-444-617

Support website http://support.ap.dell.com/

Email: haan_yu_lim [at] dell [dot] com

How am I doing? Email my manager at Kelly_Yeap [at] dell [dot] com

Dell is committed in delivering the best Customer Experience to its customers. You may be randomly selected to receive an online survey from us. We would very much appreciate you taking the time to provide us your feedback on this interaction so that we can ensure we deliver the level of service that earns us your loyalty

Good service is so rare, that it worth celebrating the all too rare opportunities when it is excellent. It is even more necessary when commentators (such as yours truly) have slammed the organisation previously, that, when they get it right, to be ‘big’ enough to tell the other side.

Some more ‘old’ research that has stood the test of time.)

However, I thought it might be worthwhile publishing this ‘for the record’ so that you now can know (and say) with confidence, based on scientific evidence, that these two shopper profiles exist.

But more importantly, it is worth considering what the practical uses of this typology are?

So, for the record:

Type Q: The functional, utilitarian patron who shops of necessity, as quickly (hence: type Q) as possible because it is a chore. This type of behaviour is characterised by small but frequent purchases which are purely aimed at acquiring merchandise for consumption. Duration of the visit is usually short, and only a limited part of the centre (if it is a large centre) or a small (convenience) centre is patronised. Target stores are usually supermarkets for grocery shopping.

Type R: The hedonic shopper who does not necessarily buy a lot but has fun and enjoys the shopping task. The visit to the centre is in a relaxed (hence: type R) manner. The aim is to enjoy the shopping experience and the actual purchase and consumption is secondary. That is the patronage behaviour does not necessarily extend to buying behaviour - or is limited to entertainment orientated consumption.

** Shoppers may switch roles during a single visit.

And, it is useful knowledge (for retailers) because:

ONE: Not every patron is a customer every time; so don’t overdo the pushy sales techniques when they are Type R. This means you (and your staff) must be able to recognise Type R. Can you? Is your staff trained to differentiate the signals?

And when they say ‘just browsing’, they are not necessarily Type R, they are usually just camouflaging their behaviour to put annoying or incompetent sale people off.

TWO: How are you catering for these shoppers who are not buyers? They obviously came into your store for something (they’ll buy next time) but what are you doing for them this time? Even if you are a ‘convenience’-type operator, there are plenty of opportunities for your to connect with the Type R, because that means they will come back (maybe next time) as Type Q.

It is easy for competitors to match your physical offer. However, if you build a few of these other drivers into your proposition, you might be able to build a more sustainable competitive advantage