The holiday season is officially upon us. For many Americans, the day after Thanksgiving marks the start of busiest holiday shopping time of the year. The biggest sales of the year will start during this time as many rush to buy presents for their loved ones.
Many are thinking discounts, incentives, and other bonuses for buying during this time. Trouble is, many of these stores sell their products/services at a price. They discount their items which affects the margins of their products/services. If the business is a large retailer like Walmart, selling items at a low price wouldn’t hurt the business much because it makes it up in volume. If a business is a small mom-and-pop store, following this massive discounting can hurt the bottom line significantly. I’ll explain why and how to avoid this in a bit.
Back to holiday sales. Some years, there is always that special item that people deem as a must have during Christmas. People want it so much that fights have broke out because of items like toys and deaths have even been caused by crowd trampling at stores. Interestingly, the craze this year is the new Microsoft Xbox 360. In it’s pre-launch phase where only a few units are released to the public, it has brought about a frenzy of secondary market buying activity. On Ebay, some of these units have been bid up to more than $9,000.
There is much to learn from what other businesses do. You can apply these same strategies to boost sales anytime, not just during the holidays. So what lessons can you gain from it? Here we’ll introduce some key concepts that you can apply to grow your business.
Let’s look at the pricing strategies of businesses during this season. In discounting, the hope is always to drive more traffic through a store, generate more phone calls, or more online orders. Businesses expect the lower price to do all the heavy lifting in selling. This, however, is a lazy tactic for generating sales. How easy is it for a competitor to lower their price as well? In a heartbeat, lowering prices can spark a price war. Many times, the massive discounting of items turns non-commoditized items into plain commodities. Competing on price creates a price war where no one wins, not even the consumer. These competing businesses suffer huge losses in their profit margins, affecting service levels, future business growth projects, and upgrading of the business’ products and service. The consumer loses because such price wars eventually drive smaller players out of the market and service gets compromised because lesser profit means lower quality people are hired to compensate for margin loss.
Low prices conjure up the impressions of lower quality. In Robert Cialdini’s book Influence – The Psychology of Persuasion, a native jewelry owner frustrated by poor sales, scribbled a note to her sales person hoping to rid her store of the items in a display case by discounting by 50%. Instead, the sales person misunderstood and thought she wanted everything inside the display case doubled. When the jewelry store owner returned from her short trip, she was surprised to hear that *every* single item in the display case she had intended for sale at half price was completely sold out at twice the price!
Inexperienced business owners also make a fatal mistake when discounting items. They base their final pricing on cost which means that as long as the sale price is slightly above their cost, they believe they are making money. Buy low, sell a little higher. The little higher part varies based on the business, industry, size, overhead, amount expected to be sold etc. The inexperienced business owner fails to take into consideration the above factors in the actual final cost of delivering the product/service. Let’s say the cost of the product is $10. They sell it at $17 and believe they are making a profit of $7. Consider this. What if the need for employees increases in relation to having an increased number of visitors (or calls, etc), or the overheads of the business factored in actually raises the cost of each unit to $18, the business would be losing money with each unit sold. Therefore, the more being sold, the more money the business loses. In effect, the sales is actually digging a bigger hole for the business than if it just maintained the regular price!
If you do decide to discount prices, however, know this. In order for the low pricing strategy to work, it has to be part of a larger strategy of getting more from the client in order to turn a profit. Thus, you create the loss leader. A loss leader is an item a business sells for cost or less to generate interest. When the people pack the store to pick up the loss leader, the business can then cross-sell and up-sell other products/services to these clients. Proactive selling of other items available is critical to the success of this strategy. Create systems that don’t depend on your sales people’s whims and moods.
Pricing low with the intention to capture market share has it’s risks too. Unless the business has substantial cash reserves to wait out a price war, lower prices can eventually mean a business’ own downfall from the resulting heated competition.
What about loyalty? In a low price scenario, customers are conditioned to buy based on price. It is a common misconception that customers are after low prices always. While a deal is certainly good for consumers, customers are often conditioned to consider price as the major pre-determinant to buying with the constant barrage of regular sale offers by competing business. Can we blame them when they only want to compare prices and not necessary quality?
To counter the need for aggressive pricing strategies to grow a business, concentrate on building perceived value. Differentiate your products/services from the competition. Effective marketing is about perceptions not products. What makes a designer shirt different from that of a non-branded shirt? Some believe it’s constructed better, others don’t see the difference. Yet, the price can differ as much as 1000%.
Effective marketing can involve pre-empting the competition. Consider the perceptions in the freight forwarding business. FedEx owns the overnight delivery market. DHL, on the other hand, owns the worldwide delivery market. No matter how hard FedEx tries, it’ll never be first in mind for the niche of worldwide delivery. We’ll discuss differentiation and niches in more detail in a later article.
A quick note about differentiation before we move on. Avoid differentiation based on broad and generalized statements like “quality service”, “best product”, etc. Such declarations are useless and are ignored by consumers. Be specific. What makes the service quality? What makes the product best? Can you show statistics, product comparisons, or even share the story behind the product?
Now, let’s get back to the hottest selling product of the year. How do you create a hot product? Besides having a great product, you must have great marketing.
Creating a best-seller or demand for a product is an art form. The art of the launch builds anticipation for a product. It creates buzz and desire.
Here are the essential elements of a successful launch:
- 1. Lots of publicity – This is key. Ensure word goes out via all the channels you can think of: media releases, TV appearances, news stories, strategic promotional partners, and other advertising.
- 2. Growing anticipation – build a growing desire to own the product by building the value of the item and consistent communication with the prospect up till the launch date.
- 3. Previews and demonstrations showing key features they will get when they buy.
- 4. Limited supply – limit the initial batch to only a small number.
- 5. Limited time frame – if the product is to be sold after the promotional period, special pricing or bonuses can be bundled with the package which will not be in future packages.
A successful launch will build-up such anticipation to fever pitch levels where people will do whatever they can to get a hold of the item. By deploying #1, #2 and #3 a month or two before actual launch, the audience can be primed to buy the item before its release. Because of the complex nature of a product launch, we’ll explore the detailed anatomy in a later article.
[dels]sales strategies, law of supply and demand, business marketing strategies[/dels]