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Growing Your Market Share

Toys R Us has opened an Express store in our mall.

They already have a full service store in our other mall (2 miles away). They are hoping to grow their Market Share with this pop-up store (here today, gone December 26th).

Calculating Market Potential
Do you know your Market Share? Here is an easy way to find out.

  1. Find the total dollars spent in the US in your industry for 2009 (toys = $21.5 billion)
  2. Divide that by the population of the US (308.5 million)
  3. Multiply that number ($69.69) times your market’s population
  4. Adjust that number up or down based on your market’s average household income versus the national average
  5. Adjust that number up or down based on one pertinent demographic (for example, if you sell toys or children’s products, how does your youth population compare to the national average. If you sell boats, how does boat ownership in your area compare to the national average?)

The answer is your Market Potential – how much total business is done in your industry in your market. Divide your Gross Sales by the Market Potential and you’ll have your Market Share.

Knowing this makes a huge difference in how you go about your business.

How Many Customers Equals Growth?
If you have a relatively small market share (less than 5%), it doesn’t take a whole lot of new customers to grow your business. Just convincing 1% of the market to switch to you gives you 20% growth! Wouldn’t that knowledge change the way you advertise?

Knowing how to do this calculation also helps you see the trend in your market. Is it growing or shrinking?

In the case of toys, it is shrinking. Back in 2004 the sales per person was $75.17. In 2009 it was only $69.69. Plus, in my case, the population is shrinking, too. My market potential has dropped almost 10% in the past 6 years (not adjusted for inflation which makes it even worse) because we have a shrinking toy industry and a shrinking population base – double whammy.

So just to keep sales equal to last year I need to steal business from my competitors and grow my market share. That’s a hard task for any retailer, and part of the reason why Toys R Us is opening a second location in a small market. They are trying anything they can to grow their market share.

Market Share at What Expense?
But before you say, “Hey, what a great idea. I’m going to open a pop-up store!” you need to understand the ramifications of their actions. Yes, they will probably gain some market share. The mall in which they put the pop-up is next to a Wal-Mart, but doesn’t have any other toy retailers.

But the costs will be extensive. They will have rent and payroll at the new place on top of the rent and payroll at the main store. And the two stores are so close that a large portion of their sales in the new location will be lost sales at the main spot. In effect, the biggest market share they will steal is from themselves.

Pros and Cons of the Pop-up Model
If you are thinking about a pop-up store you have to weigh the pros and cons.
The pros:

  • Only paying rent for the busiest months of the year when sales are enough to pay those bills.
  • Getting exposure and sales in new geographic areas
  • Having built-in traffic (mall-generated) instead of having to advertise

The cons:

  • Increased rent and payroll (decreased profit?)
  • Increased headache of keeping inventory straight and stocked between two locations
  • Potential of cannibalizing your own market share
  • Could damage brand reputation with smaller selection, less-trained staff

Only you can weigh those options and know if it is the right decision for you. But if your market potential is shrinking, it might be the best way to grow your share of that shrinking pie. My guess is Toys R Us doesn’t care as much about expenses and profit as they do market share – a number they know all too well. That’s the number that makes headlines for them.

When you know your Market Share you are better prepared to make those decisions.

-Phil

PS In the next post I’ll tell you my plans for dealing with our shrinking Market Potential.

Give ‘Em What They Want

Next week I’m sending out a coupon. $20 off a $100 Purchase. I need to generate some cash flow and get some traffic through the door.

For the past two months we’ve been shut off from the community on two sides by federally funded construction projects (Mr. Obama, I’m not feeling very stimulated). So I’m sending out a coupon – givin’ it away – to generate some sales.

As I’ve said before, sometimes you gotta choose between profits and cash flow. This time I’m choosing cash flow.

The toughest part for my staff (besides ringing up the coupons properly:-) is dealing with the customers who want to skirt the system.

Even though the purpose of the coupon is to stimulate some new business, I’ll have a handful of customers who want to use it on a previous sale they did in the last few weeks.

Some customers will try to use it on sales less than $100 (It’s $95, isn’t that close enough?).

Others might buy $100 worth of stuff and bring $50 back the following week.

So how did I instruct my staff to handle these situations? Simple…

Smile and say, “Okay!” Yep, give it to ’em. Don’t hassle them, don’t belittle them, don’t upset them. Just do it and move on.

You see, the customers who do that are so few and far between – maybe 3% of the totally coupons used – that they aren’t worth the complaints they could generate. And they aren’t worth your energy. At worst, they aren’t profitable customers at all so don’t waste your time. Just give ’em what they want and move on. At best, they might return the kindness you show them later.

It’s not about “playing fair”, it’s about taking care of your customers – all of your customers.

As my good friend and fabulous writer, Becky Blanton said,

“When there are no score cards you’re not tied to a specific game. You’re free then to succeed”

Don’t get sucked into those kinds of games with customers, don’t get caught up in what is fair or not fair. And most certainly don’t keep score.

That’s how you win at customer service.

-Phil

Profits versus Cash Flow – Which Will You Choose?

Sometimes in retail you are faced with a difficult choice. In a tough economy, one of those choices is Profit vs. Cash Flow.

Sometimes you have to give away your profit to get more dollars streaming through the till. Sometimes you have to give up chasing dollars just to protect your profit margins.

The question is when do you choose Profit or when do you choose Cash Flow?

The answer is when you know exactly where your business stands, where you want to go, and what you need to do to get there.

For instance…

My goal for this past year was to show a profit. The bank gets a little nervous when you don’t show a profit, and to guarantee a renewal of my line of credit in these tough lending times, I knew that showing a profit would give the bank confidence in my stability and ability to succeed.

Last November I made a conscious choice to go after profit instead of cash flow. I chose not to run a direct mail coupon incentive that I had used in previous years. The trade-off was dramatic. Sales were down for November because I gave no incentive to shop early. Profit margin was way up, though, because I didn’t give away the house.

But as I looked at the lost sales in November, the question begged… Did I lose those customers for November or lose them for good? The answer came quickly in that first week of December… I only lost them for November. At the end of the two months my sales were where I expected going into the season, down only slightly. But my profit was up for the same period compared to last year. Had I run the coupon, I would have increased sales (cash flow) but decreased profit.

Because I knew my goals and knew what I needed to do to achieve them, I was able to be successful. Because I knew how my choices would affect my cash flow and profit, I was able to choose the right approach.

So what is the right approach in your business? It depends on your short and long term goals. Do you need to improve cash flow to fund a new project? Or do you need to show a strong financial statement to your investors? Do you need to improve cash flow to pay off your vendors or do you need to grow your profit to pay off yourself?

When times are good, you can do both at the same time. But when times are tight, you sometimes have to choose. Choose wisely, my friends, by knowing your goals and the means by which you will achieve them.

-Phil

PS The choice was made easier because our cash flow had been strong up to that point. What I lost in cash flow was allowable because I had built up cash flow from the previous year (at the expense of profit) Sometimes it is a seesaw between the two.

What Are You Going to Do Now?

The headline in the Jackson Citizen Patriot was about another manufacturer closing doors here in Jackson. I haven’t been doing the math, but add those 206 jobs to the layoffs and closures already announced and it paints a bleak picture.

Our county administrator spoke on the Bart Hawley Show that despite the “goverment estimates” that say our county population is growing or at least staying constant, there are signs that Jackson County is shrinking. The home foreclosures, the homes for sale versus the homes being bought, and the vast availability of rental units says people are moving out, looking for work wherever they can find it, just not here.

So my wife turned to me and asked, “What are you going to do now?”

It’s a valid question. How do you keep your business afloat when your population base is shrinking?

A shrinking population may be more challenging than new competition. With a new store entering the market you know their strengths and weaknesses and can exploit them to your advantage. But when the people are going, going, gone, what next?

The first answer is “expand your territory”. If you’re a neighborhood store, become a city-wide destination. If you’re a county-wide store, become a regional destination. Of course, that means you have to make some radical changes to your business model. You have to give people a reason to drive that much farther to see you.

That reason could be product. Is there something you sell on which you could corner the market? In today’s Internet world, that is hard to do – possible, but hard.

That reason could be service. Is there a service you offer that no one else offers? Is there a way to offer such over-the-top service that people call their friends to talk about it? Sure. It takes time and effort to get to that level. But it can be done.

That reason could be store design. Is there something remarkable about your store that makes people want to drive just to see it? I have never been to an Ikea store, but I hear so much about them that I’m compelled to eventually make the trip. In the toy industry, you can’t go to NYC without stops at FAO Schwarz and Times Square Toys R Us. Of course, store design on that level requires thousands, nay millions of dollars. And who has that to spend?

The second answer is to become more important to the community you currently serve. Are you involved in community groups? Serving on committees or boards? Not only do you gain in visibility for your store, you gain relationships with people and businesses that can help you through tough times. You also get your ear closer to the ground so that you hear and can respond faster to changing times.

A third answer to meeting the challenge of serving a shrinking population is to expand your offerings. Are there categories of products you haven’t offered that you could? Are there items customers request because they think you would carry it but you don’t? Grocery stores used to sell food. Now they sell everything from stamps to socks.

I’m not saying you should run out and invest in a whole bunch of inventory just because, but ask yourself if there is an area in which you could expand that would draw some traffic. Years ago, when Hughes & Hatcher went out of business, we applied for the right to carry Boy Scout and Girl Scout merchandise. The target audience was a perfect fit. And although profit margins are fixed quite low, the draw of the line more than makes up for the low profits.

To recap, here are three things to do in a shrinking market:

  1. Expand Your Geographical Reach – exclusive products, over-the-top services, or incredible merchandising that will bring ’em in from miles away
  2. Expand Your Involvement – Get involved in your community and network, network, network
  3. Expand Your Product Selection – Look for new product areas to serve your current customer base

Yeah, we’re trying to do all three.

-Phil

The Third Mistake

The boss says,”Cut your spending.” The acountant says, “You’ve got to cut spending.” The board says, “Reign in the spending.”

But as you pour over your expenses, they all seem necessary. Utilities? Yep, gotta keep the heat on. Insurance? Don’t want to be caught with our pants down. Selling Supplies? Can’t sell without supplies. Payroll? Don’t want to be like Circuit City. Advertising? Advertising? Yeah, advertising… everyone says advertising doesn’t work any more anyway. Let’s cut advertising.

Wait!

Before you make the first cut, you better know what you are doing. Cutting money out of the ad budget must be done with the skill of a diamond cutter. One wrong move and you’ll cut off your business at the knees.

You have to know how your ads work for you, how they grow your business, how they attract new customers and keep old ones, how they influence the decision-making process of your potential clients. You have to know where your ads are most effective and where they are wasting time and money. You have to evaluate each and every component of your ad budget before dropping the axe. And then, only drop it sparingly.

Advertising is your lifeline in a down economy. It is also your ticket to the top of the hill. Way too many businesses in an economy like this take the easy road and cut huge chunks out of their ad budgets without truly evaluating why their ads work or don’t work. They say things like, “I tried radio for 4 weeks and it didn’t work, so I’ll cut all radio ads.” Or they muse, “That newspaper ad did nothing for business, so I’ll cut all newsprint ads from the budget.”

I know, because I used to have those kinds of thoughts, too. It was always the media’s fault my ads didn’t work, never the fault of the ad I designed, never the fault of making wrong assumptions about how my ad should work within the medium.

But once you begin to understand first how each medium is designed to work and then how to design ads that work well within the medium of your choice, you will find your business getting a better return on your advertising investment.

And when you choose to continue advertising while all your competitors cut back, you’ll find your return ever greater. The cold stark truth is that no matter the economy, business is still being done. The beauty and danger of doing business in such times, however, is that customers are more fickle, less loyal to their usual shopping patterns. To the stores who disregard this behavior and cut back their advertising and customer service, these customers are turning their backs and looking for someplace new that is willing to serve their needs.

The businesses still advertising, still investing in their employees, are in position to win the hearts of these customers. Yes, even in tough times, some stores thrive. And I can guarantee you they all have one thing in common. They didn’t cut back on their marketing. They just learned how to do it smarter and more effectively to win the customers other stores are neglecting.

Would you like to learn how to market your business better?

As part of the Midtown Morning Breakfast, I’m going to present two workshops in April and May on How Ads Work.

The first one will be April 15th from 7:30am to 8:45am at Jackson Coffee Company. In this class we’ll explore how the different mediums work and how to use them most effectively. We’ll also look at the absolute best formula for calculating your ad budget that doesn’t overextend your resources. And we’ll demystify the 4 biggest myths of advertising.

The second class will be May 20th, same time, same place. In this workshop I’ll show you how to identify the true essence of your brand and make it work harder for you. Plus, we’ll discuss different techniques to make your marketing more impactful and memorable in ways that move customers toward your business.

Before you make a classic mistake and slash your marketing just to cut expenses, learn how to make the most of what you do spend. You’re bottom line depends on it.

Will you join me?

-Phil

Three Mistakes to Avoid

Circuit City is just about gone. The remaining stores are liquidating as we speak. This once fabulous chain (one of the 11 companies featured in Jim Collins’ book Good to Great) made two of the three classic retail blunders so common in a rough economy.

First, they slashed prices. In December 2006, in an effort to gain “market share” (the usual wrong-thinking excuse) Circuit City cut prices on flat-panel TV’s so low, there was no way to recoup the lost profits. The result? The worst loss in their history – $16 million.

Price-slashing is a desperate move at best, and usually backfires. Why? Most businesses never do the math. They don’t calculate the extra costs involved in selling the many more pieces they have to sell to make up the lost margin. If you make $500 per TV sold and you cut the price by $250, you need to sell twice as many TV’s to make the same profit. How much extra staffing and advertising will it take to do that? And how realistic is it that you’ll sell that many? Chances are you’ll spend more trying to sell the extra units, and also fall well short of your goal of units sold. Net result? Huge losses.

But, you say, Wal-Mart does it. Really? If all Wal-Mart did was slash prices they’d have been long gone years ago. No, Wal-Mart revolutionized operational efficiency. They made it possible to be successful on smaller margins. The volume came later as they gobbled up competitors in their ruthless expansions.

Unfortunately, price-slashing seems to be the retail mantra du jour. Sears & K-Mart have entered the fray, with JC Penney’s close on their heels. How’s that working out for you guys?

The only price-slashing that works is marking down the dogs as discussed in the previous post. Unless your business strategy is to go after the highly unprofitable Transactional Customers, price-cutting is only a recipe for disaster.

The second blunder Circuit City did followed right on the heels of the first mistake. After realizing such huge losses, in 2007 Circuit City went on an expense-cutting spree. The first to go? The high-priced, experienced sales personnel – the front-line sales staff with knowledge and sales expertise. To save money, Circuit City fired all the highest paid sales associates and replaced them with lower-paid hourly workers. And as anyone could have predicted, customer service dropped just as quickly.

When you’re selling commodities, maybe this works. But when you’re selling technology that evolves faster than the average mind can keep up, experience counts for something. Knowledge and know-how are your ally.

Unfortunately for Circuit City, this loss of knowledge in the sales staff left them with only one tool to compete in the electronics market – price. And we all know how that worked out.

In tough times, when sales are slow, one of the biggest expenses is payroll. The temptation is to cut payroll to save money. But when cutting payroll means sacrificing customer service, you’re just cutting off the nose to spite the face.

When your goal is to be the expert your customers can trust, payroll is no longer an expense, it is an investment. Instead of cutting staff, teach them to service better, to connect stronger, to sell more. Help them become more profitable for your business. Treat them like an asset, like an investment, and leverage that asset to get you the best returns it can.

If you have to make cuts, trim the fat. Cut out the inexperienced, non-productive, non-performing staff. Just as you would drop the stocks that don’t perform in your portfolio, drop the staff that don’t perform. And don’t worry about what they make. There is a reason all those Circuit City employees were making so much – they knew more, they worked more, they sold more. And the same is probably true with your staff, the most productive members make the most (if not, they deserve a raise). Keep the productive ones, give ’em raises, and cut the non-productive staff.

Price-Slashing and Payroll Cutting, two big mistakes you can’t afford to make in this economy.

The third? Marketing. We’ll save that for next time.

-Phil

Wal-Mart Got it Right

In this dismal economy Wal-Mart keeps racking up sales gains. Many people are quick to point to the slumping economy as the reason Wal-Mart is doing well. Lost your income? Shop at Wal-Mart.

But there’s more to it.

In 2007 the economy was already starting to slide, yet Wal-Mart didn’t fare so well. In 2007 Wal-Mart rolled out their “high fashion – low prices” campaign. In an effort to compete with Target’s “cheap chic”, Wal-Mart tried to upscale their offerings. The result? Abject failure. No traction whatsoever.

Why did something that worked so well for Target fail so miserably for Wal-Mart? Core values.

Target’s core values from day one have been to offer a step-up from the K-Mart/Wal-Mart fare. They have cultivated the image through store design, product selection and advertising. They have built their reputation and core customers on this premise.

At the same time, Wal-Mart’s core values have been to offer really, really cheap stuff. They have cultivated that image and their core customers over many years. Their core customers shop at Wal-Mart for one reason – really, really cheap stuff, not high fashion. So when Wal-Mart deviated from their core values, they alienated their core customers. And at the same time they were unable to shift customers loyal to Target.

But in 2008 they got it right. Wal-Mart went back to their core values and focused on what they do best – really, really cheap stuff. Yes, the economy helped. No, it wasn’t the only reason. How do we know? Because some other stores also did well in this economy, and not by offering really, really cheap stuff.

Independent stores have fared far better in this economy than their chain and department store counterparts. And the best performing independent stores did it by being true to their core values. They didn’t go after the low price market. They offered great customer service, or expert product knowledge, or high-quality merchandise, or all of the above. They made sure that their core customers’ expectations were met or exceeded. They didn’t leave their core for a grab at someone else’s pie. They stayed true to who they were.

Do you know what are your core values? Do you know who are your core customers and why they shop with you? The best stores know this and are constantly working to make sure every part of their business aligns with these values.

Our values are Fun, Helpfulness, Education, and Nostalgia. It isn’t about the products as much as whether those products are consistent with our values. It isn’t about the services, but whether those services are consistent with our values.

When you know who you are, the business model gets easier. When you stay true to your core, you create loyalty. And in this economy, when loyalty is most fragile, you need to hold onto as many customers as you can.

Everyone knows the old adage that it is cheaper to keep a customer than find a customer. Now, more than ever, that statement is showing itself to be true. Keep your core customers by sticking to your core values. Finally, a lesson from Wal-Mart we can all put into practice.

-Phil

Big Yellow Taxi

“They paved paradise and put up a parking lot…”

There are some songs that no matter who covers them, no matter where I am at the time, no matter what’s on my mind, I stop and listen.

“Big Yellow Taxi” by Joni Mitchell is one of those songs. From Joni’s lilting voice to Amy Grant’s smooth vocals, to the Counting Crow’s more gravelly sound, I just love listening to that song.

I’ve tried to play it myself but could never do it justice.

It is one of those songs that transcends generations, too. The line in the refrain is all too familiar. Sing along with me…

“Don’t it always seem to go, that you don’t know what you’ve got til it’s gone…”

Okay, a little off key, but the point is made. Many times we don’t know what we’ve got until we no longer have it. I had two moments like that recently.

While reading a trade magazine I came across a reference of a new book on branding. The book was right up my alley. I checked it out online and found multiple sites selling it. I was about to order it online but my Buy Local button kicked in. So I started to shoot an email over to Nomad Bookhouse to see if they had it before realizing they were gone, closed. I miss them.

At the same time, my wife and boys were visiting Fun 4 All Kids, a big inflatable playground where we have celebrated both boy’s birthdays. It was their last visit. As you read this, F4AK has closed.

One of our friends made the comment, “If I had known they were in trouble, maybe I would have stopped by more often.”

I heard the same things said about Nomad.

The point I want to make is this…

What are we waiting for? If there is a store, restaurant, or hangout that you particularly like, what are you doing to ensure it’s success? If there is a business you would hate to see go away, have you told your friends about it? Have you touted their virtues, sung their praises, shouted their benefits to the world?

Seth Godin, one of my favorite bloggers, said that we too often keep our favorite stores to ourselves, maybe fearful that if too many people know about it, it won’t be special anymore. (Read his blog on the subject here http://sethgodin.typepad.com/seths_blog/2008/11/dont-know-what.html) But how special are they if they’re gone?

In today’s economic climate, when traditional advertising is less and less effective, the one tried and true, always works, form of advertising is word-of-mouth.

Don’t let any more of your favorite places go away. Start talking about them now before they’re in trouble. As my friend, Bridget can attest, the outpouring of wonderful sentiments was incredible when she announced the closing of Nomad. Just think what might have happened if that outpouring of sentiment happened three or six months earlier, and not just to her but to everyone you know?

Make it your New Years Resolution to sing the praises of your favorite stores ten times more this year than last. You might be surprised how much impact and influence you can have.

Happy New Year!

-Phil

Is Price the Only Game to Play?

In earlier posts about Black Friday I made the claim that only half of all shoppers are driven purely by price. Some of you might disagree. But look at this study done this past fall.

According to the National Retail Federation’s 2008 Holiday Consumer Intentions and Actions Survey, 40 percent of shoppers say that sales or promotions is the largest factor when determining where to shop. Another 12.6 stated that everyday low prices were most important.

One story I read quoting these statistics concluded that price was the most important factor in where people shop. Of course, Winston Churchill once said that, “the only statistics you can trust are the ones you falsified yourself.”

Let’s look at the numbers more closely…

If 40% said sales and promotions were most important, then 60% did not believe sales and promotions to be most important. Three out of five people were not choosing where to shop based on sales and promotions! Selection, quality, service and location were higher up on those customers’ lists.

Remember… Transactional Customers look for sales, Relational Customers look for trust. Aren’t quality, service and selection trust factors? Of course they are. And the National Retail Federation has the statistics to prove that there are as many Relational Customers as Transactional Customers.

Just take the 40% wanting sales plus the 12.6% looking for low price and the split is 52.6% Transactional versus 47.4% Relational. In politics that’s a landslide. In business that’s a virtual split.

Yet, all the big retailers were going after the 52.6%, leaving a huge portion of shoppers not getting their needs met. It’s no wonder so many retailers are struggling. Here’s a tip. Go after the forgotten 47.4% Meet their needs and watch your business grow.

That’s what we do.

-Phil

Election Getting You Down?

Relief is coming! In less than a week all will be much better. It will be safe to turn on the radio, open the newspaper, watch your favorite TV show.

Barring any Floridian fiascos, the election will be over next Tuesday night, and with it, all of those insipid election ads telling us what liars and crooks are running for office.

It’s amazing we can have any trust or faith in government because no matter who wins, the opponent just spent thousands, maybe millions of dollars telling us how bad is the person we elected. At least if it’s someone who got our vote we can say we elected our liar and crook.

The worst thing is the cumulative effect of all that negative advertising brings down the American psyche. We see it every time there is a major election campaign – sales go down in October as people lose faith in the country only to return in November as that faith is restored.

But wait, you say. What if my candidate doesn’t win? In the short term that won’t matter. Your life and my life will be pretty much the same on November 5th as November 3rd. The only thing that changes is the tone of the airwaves.

Remember that old saying, “sticks and stones may break my bones, but words will never hurt me”? Never underestimate the power of words.

In the meantime, keep the faith. Gas prices are down, the stock market is coming back, and kind words will soon return. We understand if you’re bunkering down until next Tuesday. Don’t worry. We’ll be here when you’re ready!

-Phil