Training your Customers to Pay Less

Only a couple of companies can be the “Deep Discount Leader”. Walmart and _________.

Does anyone beat Walmart?

Maybe, but I can’t think of any.

So how do you beat Walmart? Not by being a better Walmart. Be the opposite. You can’t beat them on price but they are not perfect.

Unfortunately some people think that you have to offer discounts and “loss leaders” to attract customers. Drew wrote about this recently:

Groupon: Winner or Goat?

Posted: 22 Jan 2011 04:15 AM PST

The whole world is abuzz about Groupon. And who doesn’t love $10 worth of Cold Stone Creamery ice cream for $5? But is Groupon right for your business?

110117.groupon1

Groupon and other social-coupon sites (like LivingSocial and SocialBuy) all work the same way — a specified number of people have to pre-purchase the coupon for the deal to be activated. In theory, that’s how everyone wins. Groupon makes a prescribed amount, the buyers get a super deal and the retailer gets a guaranteed influx of cash and in theory, new customers.

But it’s not always a bed of roses. You’ve probably heard the nightmare of a story from Posie’s Cafe and their Groupon experience. Many businesses are declaring themselves “not interested” and as Chicago wine and cheese shop owner Greg O’Neil states — why replace full margin business with lower margin business?

As with most things, there isn’t a one size fits all answer. My Age of Conversation co-author and Texas based marketing guy Jay Ehret believes social coupons aren’t smart for most businesses. On the flip side, Duct Tape Marketer John Jantsch gives it a thumbs up.

There are plenty of studies and academic opinions on the topic too. Check out what Harvard Business School and Rice University had to say.

But…is it right for you? Here are the big pros and cons, as I see them.

Pro:

Big advertising boost. Groupon subscribers number in the tens of thousands or more in most cities. This is a very efficient way to generate a significant word of mouth buzz, especially if you get creative in your offer.

Exposure to many new customers. It stands to reason that you’re going to see a lot of new people coming through the door. Impress them and hopefully they’ll come back again and pay full price.

A way to test a new product or service. Want to know if the market is interested in something new? If the Groupon coupon tips — you might well have a winner!

Con:

Does the math work? Keep in mind that Groupon takes a pretty good sized cut. Half the rate charged plus 2.5% interest per transaction. (Here’s a Groupon ROI calculator you can use). So depending on your cost of goods and how many people actually redeem the coupon, you could lose your shirt like Posie’s Cafe.

What does it do to your customer/vendor/employee experience? Can your business handle a huge influx of buyers? How will the increased traffic impact your loyal customers? Your vendors? Your employees? Be sure you take all of that into account before you sign up.

What does it say about your brand? Do you want to be seen as a deep discounter? Does offering a 50% off price say something about your quality, margin or pricing strategy? How will your regulars feel about the fact that they’ve been paying full price all this time?

Lots of opinions out there but really, it’s something you need to examine for your specific business. Use the ROI calculator, weigh the pros and cons… and make the call.

The cartoon is courtesy of Tom Fishburne, the Marketoonist.

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Should You Go Undercover?

from Drew:

Marketing tip #17: Stop assuming!

Posted: 29 Oct 2010 11:44 AM PDT

104931924I’ve said it before….no one is worse at seeing your business objectively than you. If you own or run it — you cannot possibly remove your own biases, opinions and hopes from the equation.

So when you make operating, marketing and customer service decisions, you need to second guess yourself now and then. You need to remove yourself from the equation and see it from your customer’s perspective. But how do you do that, if you can’t possibly be objective?

You walk in your customers’ shoes. Literally.

You need to experience exactly what they experience. Go through your own drive thru, try to navigate your phone system without using any of the back end short cuts, see what asking for a credit or return feels like.

I’m betting that 90% of companies never do this. They think they know what their customer wants, so based on that dangerous assumption — they run their business. We all know the old saying about what happens when you assume…

Over at IowaBiz today, I explore this topic some more. Come jump into the conversation.

Are You a Funny Looking…

… Animal?

Check this out from Drew:

Stop trying to be a liger brand!

Posted: 11 Apr 2010 07:38 AM PDT

Liger_drewmclellan I’ve had this conversation about 6 times this past week, so it seems timely to write about it as well.

For some reason — many companies and brands are not content to be who they are. They feel the need to create some artificial hybrid of themselves…. no doubt because they’re afraid they’re leaving money on the table, they are missing out on some customers or their revenue is down, so they’re going to fish outside of their own pond.

Here’s the truth about your brand. If you are a lion — then be a lion. Be the boldest, loudest, most confident lion you can be.

The minute you decide to become half lion and half tiger… you compromise your own brand. You become less of who you truly are.

I’ve seen this too many times to think it is a coincidence or fluke. While you are out prowling as a liger…here are the results:

  1. You chase after business that is outside of your sweet spot — so it takes up more resources (time, talent, money) for you to deliver what you sold. In other words — lower (if any) profit.
  2. You end up working with customers who value something other than what you are best at selling, so in many cases, you are satisfying them but not delighting them.
  3. Because you are a little (or a lot) outside of your usual scope — you price your offerings badly — either giving it away (what did we say about net profits?) or trying to charge a ridiculous amount, just proving that you aren’t really an expert in that particular arena.
  4. While you are working extra hard (see #1 above) to deliver on business you really aren’t superior in, you’re so busy that you can’t chase or win sweet spot business.

In short….you are working harder, delivering less spectacular results and making less money.

I get the short term temptation of trying to be that hybrid — it’s money in the pocket.

But, in the long run, you simply diminish your own ability to be remarkable. To be the brand that goes way beyond delivering satisfaction — but instead, your customers LOVE you. Those are the companies that are surviving this recession. Those are the companies who enjoy incredible word of mouth business.

If you are a lion — be the biggest, baddest, boldest lion you can be. You don’t (and shouldn’t) be anything else.

When you Don’t Advertise


take a look at the damage done:

Survey Indicates That Reducing Advertising in a Recession is a Mistake

More than 48 percent of U.S. adults believe that a lack of advertising by a retail store, bank or auto dealership during a recession indicates that the business is likely struggling, according to a study from Ad-ology Research.

At the same time, a large majority of consumers think businesses that continue to advertise are competitive and/or committed to doing business.

The research study, “Advertising’s Impact in a Soft Economy,” which was undertaken to determine whether stopping advertising during the recession could harm a business, takes an in-depth look at specific consumer perceptions regarding firms that continue to advertise in the current economy, as well as those that do not.

Not advertising can harm brand
Advertising appears to play a key role in consumers’ view of how a business is doing, the study found. By not advertising, businesses may be sending a warning signal to current and potential customers, Ad-ology said.

For example, when consumers no longer see/hear advertising from an auto dealership during a down economy, 50 percent say they view the dealership as “struggling.” In addition, 19 percent feel these dealers are “less willing to deal,” and only 7 percent believe they “must be doing well.”

On the other hand, when a dealership advertises during tough times, 34 percent believe the dealership to be committed to doing business.

Consumer perception is similar for stores and banks. When advertising ceases among the following businesses, consumers:

* View their bank as struggling (48 percent)

* Believe their bank may not be in business much longer (12 percent)

* View their favorite store as struggling (56 percent)

* Believe their favorite store may not be in business much longer (15 percent)

However, when the following businesses continue to advertise frequently, consumers:

* Believe their bank is committed to doing business (43 percent)

* View their bank as being competitive (30 percent)

* Believe their favorite store is committed to doing business (47 percent)

* View their favorite store as being competitive (30 percent)

“It is critical to advertise in the current economic climate, to maintain long-term positive consumer perception of your brand,” said C. Lee Smith, president and CEO of Ad-ology Research. “Advertising not only assures consumers of a business’ reliability in a soft economy, but it can influence where and what they buy, especially when the ads address concerns about value.”

(Source: Marketing Charts, 05/25/09)

Are you Dead?


I’ve worked with enough businesses over the past 20 years to see a cycle of failure when a new retailer opens their doors with a lot of flash and advertising, followed by a slow death and finally a big going out of business sale, (with more advertising).

Please, don’t follow this cycle.

Want more proof? Read this from Mediapost:

Advertise or Die

According to a new Ad-ology Research study, “Advertising’s Impact in a Soft Economy,” more than 48% of U.S. adults believe that a lack of advertising by a retail store, bank or auto dealership during a recession indicates the business must be struggling. Conversly, a vast majority perceives businesses that continue to advertise as being competitive or committed to doing business.

C. Lee Smith, president and CEO of Ad-ology Research, says “It is critical to advertise in the current economic climate, to maintain long-term positive consumer perception of your brand… advertising… assures consumers of a business’ reliability… “

Other key findings include:

  • 40% of consumers use coupons more now than a year ago
  • Most consumers are as willing or more willing to pay more for ‘healthy’ or ‘organic’ products than they were a year ago
  • A ‘deeply discounted price’ was the number-one factor that would make consumers more likely to purchase a big-ticket item (+$1,000)
  • TV, newspaper, direct mail, and Internet top local media from which consumers saw/heard an ad within the last 30 days that led them to take action
  • Store Web sites ranked second only to search engines as the way consumers research products and shop online

The Humble Pizza


from Bnet.com:

Domino’s: Why We Reinvented Our Pizza — and Then Promoted How Crappy It Used to Be.

by Cait Murphy

“Where’s the love?” one woman asked scornfully. “The worst excuse for pizza I’ve ever had,” snapped another. Then there were the references to “cardboard” and “ketchup,” words that make any pizza-maker wince. But Domino’s asked for them, and has even posted them here on a company-run Web site. The remarks, conceded a company chef, “hit you right in the heart.”

Pizza is a $35 billion industry and Domino’s gets a big slice of that — about $1.5 billion. The chain, which was founded 50 years ago in Ypsilanti, Michigan, today boasts almost 9,000 stores that deliver more than 10 million pizzas a day.

But what Domino’s is known for is delivering pizzas quickly — not for making the most mouth-watering pie around. So in 2008, Domino execs began to reinvent its pizza. At the end of 2009, it rolled out the new and improved pizza, and launched an ad campaign that features consumers ruthlessly bashing its old recipe.

Scratching a known and popular product to roll out a new one is risky — as is letting people tell the world just what they thought of the old one. BNET spoke to Russell J. Weiner, Domino’s chief marketing officer, to gain some insight into the pizza transformation and the self-deprecating marketing campaign.

The media has had a field day with your ads. Slate said of your television campaign, “It’s hard to recall another recent ad in which a company self-flagellates with so much gusto.”

People may look at the ad campaign and see it as insulting. That’s not the way we see it. What we tried to do was tell a true story — not brutal, but the truth.

Also, I spent a lot of time thinking about how to change the perception of people who didn’t buy Domino’s. We talked to them, and read their blogs, and this is what they were saying. And I knew that, other than my mom, no one would care about “new and improved.” So if we just said, “Hey, this is a new and improved pizza,” we would not have gotten the doubters to try it.

Did you aim to get all this attention?

Emphatically yes! We have never seen the kind of reaction, from consumers and media, that we’re getting with our new pizza and from our advertising campaign. Awareness is high; we’re being talked about on blogs, in newspapers, on television news shows, and even the late-night entertainment programs. People are talking about Domino’s, and more importantly, they’re trying us — many for the first time in a long time.

When was the last time Domino’s changed the recipe?

When it was invented. Then in the early 90s, we went from 10 slices to eight and made a few small tweaks, but nothing like this has ever been done before.

What went into the decision?

The decision dates to early 2008, when we were having our annual strategic planning meeting in Ann Arbor, where the leadership looks five to seven years out.

Everyone knew — and there were a lot of analytics behind this — that we got high marks for delivery, convenience, and value. We thought the opportunity existed to get credit for taste, too. We know that a lot of people hadn’t tried us since college, or had stopped ordering from us five, 10 years ago. The idea was if we could win back some of those people, that would be a big opportunity.

So a conversation started to take place about how much we could capitalize on strength while addressing a perceived weakness. This was something [chairman and CEO] Dave Brandon laid out. So direction from the boss, combined with direction from our consumers, made it a no-brainer.

How did you go about redesigning the pizza?

We dissected our pizza, then reinvented it from the crust up. We tried scores of different sauces, cheeses, and doughs, with the idea of improving each of them. In each case, the market research found that the new elements recorded double-digit improvements in terms of purchase intent.

And we didn’t stop there. While we knew which individual components tasted good, we had to make sure they worked together. I always say that two good-looking people can make an ugly baby; ingredients that work well by themselves can fail in combination. So you have to make sure that all the elements taste great together.

Was there a “Eureka!” moment?

The closest thing to that was probably with the crust. No matter how much we worked on the dough, there is no way to get around the fact that most of it is covered with sauce and cheese. So we realized that the best way to improve the dough was to improve the part that was not covered up. It was when we put a garlic-butter-herb seasoning on the crust that put us over the top. This gave us the biggest jump in the data.

How do you test something like this?

Well, we have our own chefs and kitchens here in Ann Arbor, but obviously our plan is to sell outside of this building. So we spent tons of time — about 18 months — and millions of dollars looking at all the options.

Domino's Chief  Marketing Officer Russell J. Weiner and Domino's pizza chefs

Then we went to various parts of the country and did random sampling that we could then project to the U.S. as a whole. In the beginning, we focused on evaluating each element. We would make the exact same pizza, and change, say, just the sauce. Then we would ask people to taste the two samples, and give us their opinion — was the sauce too thick, too spicy, too sweet, too this, too that? This is what we call a “guidance test” and we did it on each separate ingredient — dough, crust, sauce, and cheese.

Once we established a sense of direction, we went back for another round of testing — the five best doughs, for example, and narrowed that down. Then we brought in different combinations — dough No. 1, say, with cheese No. 2; cheese No. 3 and sauce No. 4, and so on. We tested 36 different combinations. We took the favorites and put these through a robust quantitative test, with both the general population and heavy users, and we identified a clear winner.

The process sounds very data driven

Yes, but the decision was not just based on data. This is Domino’s pizza; it’s our baby. When the data came in, it was compelling, and we put it in front of the leadership team. We put the pizzas in front of them, too. David Brandon told us, ‘I don’t want to just see the data. I want to taste it.’ His point was that this change should be something that people could taste for themselves. The data was important, but the product much more so.

We made the same presentation to the board of directors, having a kind of pizza party in the conference room at our headquarters. Then we did a road show telling the story to the franchisees and we had them try it as well. The results were incredible; the amount of support when we were out there was just remarkable. These were people who had spent a lifetime making pizzas and they were able to taste the difference for themselves.

Was there opposition?

Well, I can’t say there were not people who were concerned. Heck, I was concerned. It’s normal to have discomfort in making a big decision, but other than that, we had 1,000 percent alignment on doing this. The “New Coke” analogy that we’ve heard isn’t quite right. The positions were different. Ours was a brand known much more for service; Coke was a brand known for taste, so they were changing a strength, while we were changing a relative weakness.

Cheap?


If you are in a business that does Transaction Based Marketing and don’t care about the relationship side of marketing, then you may be interested in this survey.

However, this is a dangerous game to play, because the store with the best buying power has the advantage when you are playing the “lowest price” game. And Walmart can beat you with their eyes closed.

I advice my clients not to do this. For the very reasons I just mentioned.

You will lose because:

1. By making less money per item resulting in a lower profit margin while you fixed expenses stay the same or go up.

2. People will always have an expectation of you and the stuff you sell, even if it is cheap. So that means there always is a Relationship Marketing factor in play.

This is from MarketingCharts.com. Click on the charts to make them BIGGER.

Bargain-Hunting Consumers Choose Print Ads over Online

Age, gender and educational level all play a role in whether a consumer will more inclined to seek out bargains from online ads or print ads, according to a new Adweek Media/Harris Poll survey.

In general, the survey found that newspaper and magazine ads are considered the best place to find bargains by nearly one-fourth of adult Americans surveyed in the poll. That compares with just under one in five, or 18%, who say online advertisements are most likely to help them find bargains.

In terms of other sources, more than one in 10 each say direct mail and catalogs (12%) and TV commercials (11%) are where they look, while just 2% say radio, the research found.

One-third of Americans (34%) believe the type of ad makes no difference when looking for the best bargain.

adharris-chart-1-magazine-vs-online-ads.jpg

Age and Gender

These preferences, however, shift when age, gender and education are taken into account, Harris Interactive said.

Online ads appeal most to people under age 45 and to college graduates, the survey found. People between ages 18-34 are more likely to say online ads (22%) and TV commercials (17%) are the best places to find bargains, while those ages 35-44 go online (26%). The older a person is, the more likely he or she is to use newspaper and magazine ads, as 24% of those ages 44-54 and one-third of those ages 55+ (33%) say those media are most likely to help them find the best bargain.

In terms of gender, women are more likely than men to say newspaper and magazine ads (24% vs. 22% of men) and direct mail and catalogs (14% vs. 11% of men) are more likely to help them find a bargain. Men, on the other hand, are more likely to say online advertisements are more likely to help them find a bargain (21% vs. 16% of women).

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Education’s Role

Education also plays a role in the type of media to which consumers gravitate when seeking bargains: One-fourth of those with a high-school education or less (25%) say newspaper and magazine ads are more likely to help them find a bargain compared with 20% of those with at least a college degree. Three in 10 of those with at least a college degree (29%) believe online advertisements are more likely to help them find a bargain compared with 12% of those with a high school education or less who say the same.

About the survey: This Adweek Media/Harris Poll was conducted online within the United States between December 14 and 16, 2009 among 2,136 adults (aged 18 and over).