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Direct Marketing Getting new customers Lead generation Marketing Pricing Restaurants Retail Sales Small Business Strategy

How to fine tune your pricing

What do you focus on when it’s time to improve profitability?

Sometimes barely twisting a knob can make all the difference.

This 8 minute and 30 second running stride analysis video might be a little dry if you’re not a runner, but the focus on small improvements and 300FPS video to break down opportunities to improve performance inspired me not only to re-examine my stride but to consider it in the context of your business.

Even if you don’t run, the method used to break down the runner’s performance and focus on what would make a radical improvement in his running is worth the viewing time.

You might consider the same type of approach with your pricing, particularly before you offer a discount, BOGO or raise a price.

Small price increase, big impact

Let’s say that you charge $8.99 for a meal at your restaurant. Out of that $8.99, you have to pay our food costs (33%, or $2.97) and your overhead (33%, another $2.97). That leaves a gross profit of 33.92%, or $3.05.

What happens if you raise the price by a dollar?

Your food cost and overhead don’t change. They’re still $2.97 + $2.97 = $5.94. Your gross profit obviously increases by only a dollar, to $4.05. The gross profit percentage increases to 40.5%

Not bad.

Coupon coup…for who?

Now let’s look at what happens if you discount that meal by a dollar like you might do with a coupon.

That cuts the meal price to $7.99. Your food and overhead costs are still the same, $5.94. That dollar discount comes right off the top, reducing your profit to $2.05, or 25.6%

Now what happens if instead of a coupon, you offer a “buy-one, get one” (BOGO) free deal? People love those, right?

Your food cost and overhead double to $11.88, since two meals are involved. Thanks to your buy one get one free deal, your revenue is still $8.99. Profit has gone from $3.05 (33.92%) to a loss of $2.89 (32.1%).

If we change that to “buy one, get one at half price”, your food cost and overhead are still $11.88, but your revenue rises to $13.49. In this case, gross profit is $1.61, or 17.9%. Not a lot, but better than a 32% loss.

Is a one-time drop in profit from $3.05 to $1.61 worth getting those two people in the door? You’d better know based on what these customers will do (as a group) over time.

A plan, not a guess

As we talked about last time, coupons/discounts have to be used strategically. Fail to run the numbers and they can sink you.

Losing money on a BOGO isn’t ideal unless you know your numbers very well and know that over time, that offer will bring you a new, loyal customer who has a lifetime customer value that fits your business model.

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Competition customer retention Direct Marketing Lead generation Retail Reward programs Small Business Strategy

What are coupons for?

Saturday when I checked the mail, I found a coupon from Staples.

Two coupons, actually.

One of them was for $10 off a $25 purchase.

The other was for a sizable percentage off of Avery labels.

Positives:

The coupon expired in six weeks, forcing the customer to take action.

Negatives:

TEN DOLLARS off of a $25 purchase seemed a bit extreme. As a consumer you love it, but as a business person I was stunned.

Here’s the dirty little secret about this coupon – it was for people in their loyalty (frequent buyer) program.

While it’s nice to give those folks (like me) a little bonus once in a while, keep in mind that coupons are intended to alter behavior. One example: To get you in the door of a business that doesn’t normally see you.

Yet this coupon gives loyal customers the discount, people who have already demonstrated that they will return again and again.

I can see both sides of it, but ….it certainly made me wonder.

Why am I here?

I went to Staples because I needed a big roll of bubble wrap for shipping. I would’ve bought it regardless. Instead, I took home the bubble wrap (discounted), a pack of pens (free) and a Diet Coke (free).

Do I feel more loyal to their store because of the coupon? Nope. I go there for certain things because I know they have them – and because Lisa the cashier has been there forever, is very nice and remembers my name even though I visit only a few times a year.

I do appreciate the ten bucks, but it makes me wonder…how are you keeping tabs with your most loyal customers?

When did you last ask them an important question? Do they know that you’re aware of how important they are to you?

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Business model Competition Customer relationships Direct Marketing Getting new customers Internet marketing Lead generation Marketing marketing to the affluent Marketing to women Positioning Small Business

Starting A New Business : Part 3 – Marketing

Chester 2
Creative Commons License photo credit: Yatmandu

Good marketing doesn’t need to lie.

If you have to lie to sell your stuff, either your stuff isn’t worth buying or you aren’t worth buying it from.

Harsh words? Not if you want to stay in the business you’re about to start.

These days, buyers are empowered by the information made available to them by other buyers. I don’t have to list all the websites with ratings, reviews and so on. You already know them – they’re the sites where lies are documented (along with the good stuff).

Remember how easy (and perhaps even pleasant) it is to do business with someone you trust?

When it’s clear that you can trust the person on the other side of the table, the other end of the phone conversation, behind the register or on that website, it gives you the freedom to choose the best product or service. Building that trust is part of the job of good marketing.

Think about it. What store drives you crazy? Now consider the one that you love. The differences between them might be minor but they are significant enough that you’d never choose the drives-you-crazy store. Which one is easier to sell?

Remember the source

Consider when a business says something like this: “We’re the leading vendor of (some random product) in the valley.” The leading or A leading? Leading how? Without proof, you’re not so likely to believe an ad that makes that claim unless it includes some plausible evidence.

Now consider when several of their customers tell you that a business is the only place to go for certain items and then *justify that assertion with a glowing description of their experiences*.

The difference between those two claims? Proof that comes from a trusted party – what I usually call “testimonials”.

Standout execution that meets or exceeds what your marketing promised are what seals the relationship and generates the word of mouth proof you want.

Standout

People are conditioned to receive poorly-targeted, poorly-timed marketing delivering the wrong message because they see so much of those things.

While they may not realize that they’re subjected to poor marketing, they’ll react more predictably to efforts that are well-timed and targeted. That alone usually stands out from everyone else in your market.

Good marketing is trackable. It delivers a message that fits the recipient and where possible, their situation. It’s designed to deliver the right message to the right person at the right time. It communicates the reason why people should do business with you rather than everyone else in your market.

Your marketing needs to answer your “reason why” question: “Why should you do business with us instead of everyone else?”

Fedex uses “When it absolutely, positively has to be there overnight.” Clear, concise, has obvious value to the right customer and they back it up with quality. Your core concept, in conjunction with your focus on your ideal customer(s), has to be just as obvious and backed up similarly.

Look at the recent pitch from the JCPenney retail chain, which you could paraphrase as “Good pricing every day without gimmicky sales.” Frequent sales and coupons sent out every week devalue your goods and condition people to buy only when there’s a sale or a coupon. These practices subconsciously teach your clientele that you product isn’t worth full price.

Promotions provide a reason why, but they don’t necessarily discount/devalue what you sell.

Good marketing is planned, not random. It provokes an action: What do you want the customer/prospect to do next? Visit a website? Make a call? Come into your store? Test drive?

On target

Many of the questions from Starting a New Business : Part 2 are critical considerations for your marketing.

For example, I asked you to consider the question “Are you familiar enough with your prospective ideal customer to enter their market?”

It’s a pretty important question. Who is your ideal customers? There might be several core groups. Go back over those questions from last week and figure out who they are. Describe them in detail. That will help you know how, when and where to speak to them as well as what they need to know in order to make a buying decision.

Good marketing doesn’t need to lie.

Categories
Banking Competition Getting new customers Lead generation Marketing Positioning Small Business

Being aware

One of the efforts of those involved in the Occupy movement is to move accounts from “Wall Street banks” to locally owned credit unions as a way of demonstrating frustration with large banks.

While the press indicates these moves have been going on for some time, the big day of those transfers was supposed to be last Saturday, November 5th.

During my travels on Saturday morning, I drove past 3 different credit unions in 2 different towns.

On a day when they might get more than a usual level of attention and new accounts, all 3 were closed.

While it’s possible that it wouldn’t have amounted to anything in a rural area where I live, no signage appeared indicating that clients from other institutions are welcome, or how another bank’s customer might compare the credit union’s services to their current bank. This could have been done without showing support or disdain for Occupy and regardless of the bank management’s position on it.

It makes me wonder if they’re paying attention.

Just a thought…that extends well beyond banking. Be aware of what’s in the news that might be front and center in the minds of your customers *and* prospects.