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Pricing Mistakes That Lose Sales

Almost invariably when you compliment someone on the clothes or shoes they are wearing, they tell you the origin story of how they found that outfit. More often than not, you’ll also hear about the fabulous deal they got when they bought it.

While deals and discounts are great for origin stories of outfits (and other products), how a retailer handles those deals relates directly to how many origin stories get told. Plus, no matter how many deals and percentage discounts you offer, the Value Equation is still in effect.

VALUE EQUATION

While sales and events might draw traffic, the real purchasing decision comes down to the Value Equation. Does the item I’m about to buy seem to be worth the price I am about to pay? Or more simply put …

Do I want the item more than I want the money it will take to buy it?

When we walk into a store we immediately start asking those questions of every product we see. At what price would I buy that item?

For most of the store, the answer is “Free”. So you walk right by those items until you find the item you want. When you find that item you immediately assign a price you would be willing to pay for that item. I often call that the Perceived Worth. Then you look at the Actual Price. If the Actual Price equals the Perceived Worth, the item goes in the cart and your origin story begins.

The problems arise when the Actual Price is not equal to the Perceived Worth. If the price is much higher than you thought, you walk away and keep looking. If the price is much lower, you first have to figure out why. Is the item inferior? Is the quality bad? Does it not do what I thought it would? Did I overestimate its worth? Until you have satisfied that question, there is no origin story.

WHAT’S THE PRICE?

The worse problem is when there is no Actual Price (or at least no clear sign on what the discount might be). Now you have to engage a sales clerk to make a Value Equation decision. Or you might have to take the item up to the register to have them scan it to see if it fits your Perceived Worth.

Many guys will walk away from the purchase of anything that wasn’t the one item they came in to purchase if there isn’t a price on it. Many introverts will do the same.

You’ll lose all impulse sales on the items that aren’t priced.

You’ll also lose sales if the discounts aren’t clearly marked. While the origin story might become awesome when a customer gets to the register to find an extra 30% off, if she had known that discount before she got to the register, she might have bought multiple items. As it is, now she doesn’t want to hold up the line to try to find a couple more in her size or have to get back in line to wait even longer.

You’ll lose multiple item sales when the discounts aren’t fully marked.

While many of you have downloaded and follow my three rules on Pricing for Profit, here are two more rules to add to your pricing philosophy:

  1. Price your goods based on their Perceived Worth (not on their cost). If it looks like a Fifty Dollar Item, price it at $49.99 and watch it fly off the shelves.
  2. Make sure all your items are clearly marked with their current price. You’re losing sales if you don’t.

Pricing is the one mistake no retailer can afford to make. Fortunately, the pricing rules that increase your sales are easy to follow.

-Phil Wrzesinski
www.PhilsForum.com

PS I had two experiences this past weekend where these rules came into play. The first was a pair of shorts. I found the ones I liked and was ready to buy until I saw the price. It was much, much higher than I was willing to spend, so I put them back. The second was an air conditioner unit. I walked into the store with no intention of buying a new AC window unit. Oh, I had the thought of wanting to replace my older, energy-INefficient model eventually. But that wasn’t my purpose of this trip. Yet there was a stack of them right in the middle of the aisle—with NO PRICES! After wandering around the pallet twice, I gave up. If I hadn’t walked past the section of the store with more AC units—this time priced—I would not have made a purchase.

Getting Internet Customers Back Into Your Store

I did a mash-up of two presentations at an event for the pet store industry last week. I took elements from Selling in a Showrooming World and Generating Word-of-Mouth and put them into a new presentation we called “Getting Internet Customers Back Into Your Store.”

It worked.

One of the reasons it worked so well was because it went beyond Showrooming. Showrooming is less and less of a thing as people are becoming more and more comfortable with shopping online. Customers used to showroom a lot when they didn’t feel they could trust what they saw online, but easy return policies and trustworthy sites are changing that.

Customers are going online first and staying online to buy.

The real issue today is that many people have become so comfortable with shopping online that it is now the default position. They would rather order it from Amazon than stop in and see you or the product.

That’s scary.

The problem is that you and I are partially to blame. Although roughly half of the population would love to shop for reasons other than price (“trust” and “experience” being the two biggest of those reasons), in the absence of those other reasons, price becomes the default, and, right or wrong, Amazon has won the minds of people believing them to be the best price.

ONE BAD EXPERIENCE SPOILS THE WHOLE BUNCH

The real culprit is the collective experience your customers have in all their brick & mortar shopping. Every time they step foot in a store, that store influences whether they keep shopping brick & mortar or go online.

Yes, you get hurt because JCP didn’t train their sales staff very well, because Macy’s cut back on payroll, because Walmart installed self-checkout stands. Yes, you get hurt by experiences out of your control.

How do you win those customers back that are defaulting to the Internet? By doing the kind of things in your store that get people excited, the kind of things that get people talking about you to their friends.

In short, you do the same things you would do to generate Word-of-Mouth advertising.

GO OVER-THE-TOP

Make your services, your events, your store design, your displays, and even the simple little interactions you have with your customers so over-the-top and unexpected that they can’t wait to tell their friends and are already planning their next visit to see you.

There are four words that pretty much define most peoples’ choices for where to shop—Price, Convenience, Trust, and Experience.

All the big chains have been fighting over those first three (well, really, the first one or two) to the detriment of the Experience, not realizing that Experience is the one thing that brick & mortar can always win over the Internet. Plus, Experience is a short path that leads to Trust.

Want to win the Internet customer back to your store? Give her an Experience worth sharing. She’ll be back and will be bringing her friends with her.

-Phil Wrzesinski
www.PhilsForum.com

PS You and I both know Amazon isn’t always the best price. You and I both know the hassles and inconvenience of shipping (lost or stolen packages, missed deadlines, etc.). You and I both know no one cares as much about their customers as you do. No other retailer frets over a mistake or bad experience like an indie retailer. Yet your customers don’t judge you solely on you. You are judged three ways—as yourself, as part of a collective known as “indie retailers”, and as a collective of “brick & mortar stores.” One bad experience in those latter two groups hurts you. Your best defense is to play the Experience card. Play it hard and play it often until you become the unicorn in those other two groups.

PPS Indie Retailers used to own both Trust and Experience. Go read that third paragraph again. I shuddered when I said it last week in the presentation. I shuddered when I wrote it today. If we lose that word to the Internet, it will be a game changer.

How Much Would You Pay?

Have you ever walked through a store, saw a display, and thought, “Wow! Someone would actually pay that much for that?” Of course you have. We all have. It is the internal pricing game we all play called …

“How Much Would You Pay?”

Unless you’re the only option in town, pricing is a game of finding that sweet spot in price that matches the answer most people would pay for your product or service. The better you determine that price, the better your sales and profits.

And before you think that lowering the price is the only way to go, remember that some people will look at a really low price and think, “What must be wrong with it?” You can cheapen the perception of your products or services by pricing them too low.

I knew a guy who sang at events. He was getting tired of the gigs. He asked me if I thought it was smart of him to double his price so that he would get fewer gigs and still make around the same amount of money. I told him to expect the opposite to happen. I was right.

His bookings doubled with the doubling of his price because people figured if he charged that much he must be really good. In other words, his earlier price was too low. Fortunately, the extra bookings along with the higher price re-energized his career.

I call this concept Perceived Worth. It is something we all do when shopping. We look at an item and determine its Perceived Worth (PW). Then we look at the price. If the price equals the PW and we’re in the market to buy it, we place it in the cart. If it is too high or too low, we hesitate. We won’t make the purchase until we can justify the price discrepancy.

If we don’t need the product, our PW for that item is zero, and we move on, but we’ll still play the Pricing Game to see if what we would expect to pay matches the price.

I NEED YOUR HELP

I tell you this because I would like your help on the PW of a service I have been asked to perform.

You may recall a couple weeks ago I gave you five Self-Diagnosis Tools to help you take a critical look at your business. Those tools were:

I was asked what it would cost to hire me to come to a business for three days to perform those five diagnostics.

I would like to know what you think the Perceived Worth would be to have someone like me do a complete diagnostic evaluation of your business using those five criteria.

I would visit your business for three days. I would need access to your financials (Balance Sheet and Profit & Loss plus your Average Inventory at Cost). I would need to see what Advertising you have done (and any contracts you’ve signed for advertising). And I would need a couple hours of your time over the three days to answer questions here and there.

At the end I would write up an evaluation showing where you were doing well, where you needed attention, and recommendations for what to work on next, including a priority of where to put your resources first.

Two Questions:

  • What would you EXPECT to pay for such a service?
  • What would you be WILLING to pay for such a service?

I am curious to see your responses. You may send them to me via email or PM, leave a comment on this blog, or comment on Twitter, LinkedIn, or Facebook.

-Phil Wrzesinski
www.PhilsForum.com

PS Even if you don’t own a business I am curious to see your response. I am trying to gauge whether there is a viable market for this service or not. I’d love to know what people perceive such a service to be worth. There are no wrong answers.

Self-Diagnosis Tool #4 – Inventory Management

I used to like math. It lost me when it added the timber industry into the equation (logs and natural logs and all that calculus stuff). I got jaded because I could never figure out how to derive those trees into the answer the professor wanted.

I found, however, all that algebra I had to learn to get to calculus has actually been quite useful.

Today we’re going to put it to use to diagnose how well you are Managing your Inventory. Fortunately it is simple algebra, stuff your POS system might already do for you, and stuff you can easily program into an Excel spreadsheet once and not have to do it all the time.

Stick with me, because the numbers are fascinating.

First, here is the list of numbers we’re going to calculate:

  • Profit Margin
  • Turn Ratio
  • Gross Margin Return on Inventory (GMROI)
  • Accounts-Payable-to-Inventory Ratio
  • Current Ratio
  • Cash-to-Current Ratio

Here are the numbers we need to find from our reports to calculate the above numbers.

  • Gross Sales – This can be found on your year-end Profit & Loss Statement (also called an Income Statement)
  • Cost of Goods Sold (COGS) – This can be found on your year-end Profit & Loss Statement
  • Total Current Assets – This can be found on your year-end Balance Sheet
  • Total Current Liabilities – This can be found on your year-end Balance Sheet
  • Cash on Hand – This can be found on your year-end Balance Sheet
  • Accounts Payable – The money you owe to your vendors. This can be found on your year-end Balance Sheet
  • Current Inventory at Cost – This can be found on your year-end Balance Sheet
  • Average Inventory at Cost – You will likely have to calculate this unless your POS system has a report that will give you this number. Take your Current Inventory from each monthly Balance Sheet, add those twelve numbers together and divide by twelve.

Go get those numbers. I’ll wait.

PROFIT MARGIN

Profit Margin is your profit as a percentage of the retail price. The formula looks like this:

Profit Margin = (Gross Sales—COGS)/Gross Sales

Do this math and your results will likely be between 45% and 55%. That is a typical range for an indie retailer.

Obviously the higher the number, the better. If you are at or above the higher end of this range, good for you! There might be some room to push that margin a little higher, but for the most part, that area of your business is in good shape.

If your number is at the lower end of that range—and your rent/mortgage costs for your building are at 10% or higher of your Gross Sales—then we need to seriously look at how to raise that Profit Margin. Otherwise you won’t have enough money to properly pay for things like Payroll and Marketing.

I developed a simple, intuitive, easy way for any retailer to be able to raise their prices in the right way—one that doesn’t kill sales, but actually maximizes them. Most stores who adopt this pricing strategy see both increased Profit Margin and increased unit sales at the same time. Download the FREE Pricing for Profit eBook and see where and how to raise those margins.

TURN RATIO

Turn Ratio is simply a number that tells you how often you turn over your entire inventory in a calendar year. To do this calculation, you only need two numbers. The formula looks like this:

Turn Ratio = COGS/Average Inventory at Cost

The range for this number varies quite widely from 2.0 to 8.0. If you are a seasonal business such as a toy store, a garden center, or a gift shop in a summer tourist town, your number is often quite lower (2.0 to 5.0). If you are a store without a true season such as a pet store or baby goods store, your number will likely be higher (3.5 to 6.0). If you are a commodities store (i.e. grocery) your number will be much higher (5.0 to 8.0).

This is a tricky number to use by itself for diagnosing your business health. For instance, just being at the high end doesn’t necessarily mean you’re doing well. You might be losing potential sales because your inventory is too light. One misplaced order or one vendor who is out-of-stock could cripple your next month’s sales. Being at the lower end of your range isn’t necessarily bad, either, if you are able to get favorable terms from your vendors.

Often we’ll look at this number in conjunction with another number. For instance, if your Profit Margin is low, you can offset that by turning over your inventory faster (make it up with volume).

GROSS MARGIN RETURN ON INVENTORY

One number often used in conjunction with Turn Ratio is GMROI. GMROI tells you how much money you made for each dollar you invested in inventory. The formula is:

GMROI = (Gross Sales x Profit Margin)/Average Inventory at Cost

A typical indie retailer is likely going to have a GMROI between 200% and 400% meaning for every dollar you invested in inventory, you made $2 to $4 in return.

One reason we look at this in conjunction with Turn Ratio is because of Profit Margin. If your Profit Margin is really high, that lowers your Turn Ratio, but increases your GMROI. So if GMROI and Profit Margin are healthy, we know your Inventory is probably okay, even if your Turn Ratio is a little low. But if GMROI and Turn Ratio are both low, something needs to change.

There are only three ways to affect GMROI:

  • Increase Gross Sales (without decreasing prices – you might want to revisit Self-Diagnosis Tool #3 Customer Service)
  • Increase Profit Margin (see above)
  • Decrease Average Inventory at Cost (see “Dead Weight” below)

ACCOUNTS-PAYABLE-TO-INVENTORY RATIO

(Also called “Payables-to-Inventory Ratio”)

This is an interesting number to throw into the mix because it tells you how much of your inventory is already paid for, and how much is being financed by your vendors. The formula looks like this:

AP-to-Inventory Ratio = Accounts Payable/Current Inventory

A typical indie retailer will likely have an AP-to-Inventory Ratio between 20-35%. The higher this number, the more favorable the terms you are getting from your vendors. Being at the lower end of this ratio means either you have unfavorable terms (or no terms at all—common in certain food service industries) or too much dead weight in your inventory. If your vendors are all offering Net 30 or better terms and your Ratio is low, then it is definitely dead weight in your inventory.

One interesting phenomenon this number helps point out is when terms are incredibly favorable. For instance, some of my vendors would offer me December Dating. I could stock up heavily in January and not pay until December 1st. The upside was getting my large store stocked quickly and thoroughly. The downside is that my Average Inventory at Cost would be extremely high, putting me at the lower end of the range for both Turn Ratio and GMROI. But my AP-to-Inventory Ratio would be outstanding!

(Note: if your industry does not offer terms, you need a higher Profit Margin and Turn Ratio to offset this.)

CURRENT RATIO

This number comes straight off your Balance Sheet. The Ratio shows whether you have enough Current Assets to pay off all your Current Liabilities. The formula looks like this:

Current Ratio = Current Assets/Current Liabilities

Depending on when you do this calculation, your number will vary. If you are a 4th Quarter store and you run this number on January 1st, you’ll likely have a Current Ratio in the 2.5 to 3.5 range. other times of year it might be down around 1.5.

Most banks use that 1.5 as the bellweather mark. You need to be there or higher to be considered healthy.  Anything below 1.5 is too low because even the banks realize you won’t be able to liquidate everything in a pinch.

This number by itself is only part of the Inventory Management analysis.

(Note: if your Current Ratio is too low, you can look at a couple options to make it better. First, raise your prices and sell more goods to pay off those Liabilities. Your Current Assets include your inventory at cost, not at retail. Second, look into a long-term loan to pay off some of those Current Liabilities.)

CASH-TO-CURRENT LIABILITIES RATIO

Your Current Assets include two numbers—Cash and Inventory. This Ratio is similar to the previous one, but only looks at your Cash in relation to Current Liabilities. The formula looks like this:

Cash-to-Current Liabilities Ratio = Cash/Current Liabilities

Again, this number varies widely depending on time of year. If you just finished a successful Christmas season and are loaded with cash, your Ratio might in the 70-80% range. If you ran that same number on December 1st when your Inventory and Current Liabilities were at their highest, that number could be 10-20%.

Think of those two ranges as goals to shoot for depending on the time of year and your season. (Note: if you are in an industry without a “season” you’ll likely always be closer to the 20% mark and that’s okay.)

The key to this number is to look at it in conjunction with the Current Ratio. If your Current Ratio is good but your Cash-to-Current isn’t, then you have too much inventory. If your Current Ratio is bad, but your Cash-to-Current is good, then you don’t have enough inventory.

If both are bad, we have some serious work to do.

IDENTIFY THE “DEAD WEIGHT” AND THE “MUST-HAVES”

All of that math is done to help you understand whether your inventory is in balance or not. Retail is a balancing game. If you have too much inventory, you don’t have enough cash. Without cash you cannot pay your people to sell your excessive inventory. If you have too much cash, you might not have enough inventory to make the sales you need to continue your growth and keep your customers happy.

Most inventory problems happen when you are unable to manage the two ends of the inventory spectrum—the fastest and slowest moving products.

DEAD WEIGHT

Your “dead weight” in your inventory is the stuff that isn’t moving. You’ve paid for it, but it isn’t making you any money. It just sits on the shelf and sucks the life out of you. You have to find it and turn it into cash as quickly as possible.

Think of it this way …

If you spend $60 on a product and put it on your shelf, that space on your shelf has now cost you $60. That shelf space needs to make you money. Right now, however, it is costing you. The hope is that you’ll sell the product for $120 and make $60 for that shelf space, but the longer it sits, the more you stay in the red. Once you realize that item isn’t going to sell, mark it down to $60 and get back to even. Then find something else to put in its place that will sell and make you money.

You need a system for identifying these slow movers. I used the following criteria:

  • Didn’t sell through by Christmas
  • Hasn’t sold in 3 Months
  • Damaged box
  • Old style packaging
  • Don’t like it
  • Have a better version coming

That was the stuff I needed to move out. Every year in May and June my team and I would pull all these items off the shelf, mark them half-price, and then have a HUGE sale on the third Thursday in July. Turn it into cash.

Whatever system you choose to use, make sure you have one that identifies the dead weight and turns it into cash quickly.

MUST-HAVES

The other end of the inventory spectrum is the “must-haves”, the stuff you never want to be without.

  • If customers come in asking for the product by name, it is a must-have.
  • If your store is known for selling this item, it is a must-have.
  • If you sell more than one a week, it is a must-have.
  • If the item is something you always sell and the customer needs it right now, as in they’ll drive all over town until they have it, it is a must-have.

When cash flow is poor, this is where the inventory dollars need to go. Don’t worry about profit margin. Worry about keeping your core customers happy. If you are constantly saying “No, we don’t have it,” your customers will eventually stop asking.

There are several models for what percentage of your inventory should be changing to new product each year (or season). Rather than worry about percentages, let’s just put this into priorities. When you are looking to place orders, your priorities should be:

  1. Must-Haves
  2. New Products
  3. Everything Else

The vast majority of your customers are going to ask for two things:

  • Do you have a specific item?
  • What’s new?

Inventory Management is about making sure you have a positive answer for both of those questions.

DOS AND DON’TS

If you’ve made it this far, I’m going to leave you with some simple tips that will help you improve your cash flow.

Here is my Do List:

  • Do measure those numbers above. Together they tell a story. What gets measured and managed improves.
  • Do ask for Extended Terms from your vendors (but be sure to reward those vendors by paying those bills on time).
  • Do buy less but buy more often. Smaller orders placed more frequently will always improve cash flow. If a vendor has great terms at a trade show, see if they’ll take your huge order and split it into two or three ship dates to spread out your payments.

Here is my Don’t List:

  • Don’t buy anything you don’t want. Never pad an order with something you don’t fully believe in selling. It never works out well.
  • Don’t run out of the Must-Haves.
  • Don’t out-buy your terms. If it is Net 30, try to buy 30 days worth of product (not always possible, but incredibly effective when you do it right).

Whew! We’re at the end of this Self-Diagnosis Tool. Realistically, however, this is just the tip of the iceberg for Inventory Management. There are some more details in the FREE eBook Inventory Management for 4th Quarter Stores. (I also have one specifically for the Pet Store Industry.) I also recommend you look at Merchandising Made Easy. sometimes it is your displays that are turning good merchandise into dead weight.

-Phil Wrzesinski
www.PhilsForum.com

PS If the math is driving you crazy, find a high school kid getting all A’s in Calculus. Show him this. He’ll find the math to be incredibly easy and can set up your Excel Spreadsheet so that all you have to do is plug in the numbers.

PPS Sell off your seasonal merchandise. Don’t carry it over. Without going into all the details, you’re better off marking down your seasonal merchandise at the end of the season and turning it into cash than carrying it over into next year. The math says it is the right thing to do.

PPPS One last number I might look at is Shrinkage—the amount of inventory that disappears, unaccounted for. If you’re using a POS system, your shrinkage is the discrepancy between what your computer thinks you should have in inventory and what your physical inventory actually shows. Read those FREE eBooks on Inventory Management for more info on what causes shrinkage and how to control it.

Go here for Self-Diagnosis Tool #5 – Marketing & Advertising

The Thirty Questions to Find Your “Silver Bullet”

I got suckered in once. Long before the phrase “fake news” came into existence, back in the days when Norton and MacAfee were the only names in anti-virus protection, my computer started slowing down.

Then up popped an ad for a free diagnostic test of my computer, guaranteed to clean it up and take it to speeds the factory settings never could. I downloaded it and immediately all these warnings came flashing on the screen telling me I was infected and needed to download this fancy, official-sounding fix right away before I lost critical data.

Yeah, you can probably guess the rest.

I took the computer to a local shop who cleaned several viruses and Trojans off the hard drive and got me back to my normal, plodding, limited-by-my-service-provider-not-my-computer speeds.

We’re all looking for that quick-fix, aren’t we? That guaranteed, take-you-to-the-next-level tool that will transform your business? That’s why scams like that computer virus one worked so well. We all keep thinking there is that one silver bullet we’re missing that will make all our ills go away.

Here is where I’m supposed to tell you there isn’t a silver bullet. Eat less and exercise more, right?

The truth is there is a silver bullet. And a bronze one. And a gold one. And a titanium-plated, platinum-infused, diamond-encrusted, gold-leafed, emerald-cut, space-aged aluminum, time-released-capsule one.

The problem is that every business needs a different bullet. In retail there is no one-size-fits-all bullet.

You might be struggling with cash flow while your neighbor down the street needs help with a better marketing message. The store on the next block has a customer service problem, while the store across the street is in a market with too many competitors.

What retailers really need is a good diagnostic tool to help you identify the true problem(s). Unfortunately your business isn’t like an automobile where you can plug it in and see what’s wrong.

You can hire a consultant, but unless they have a background in understanding independent retail, they might not be able to diagnose your true problem either. You can try to do it yourself (I gave you a few Measuring Cups to use in an earlier post), but it is often hard to read the label from inside the bottle.

Since I am the DIY guy of retail, though, I want to show you the approach I would take to diagnose where your business needs work so that maybe you can find the demon holding you back. If you were to hire me, I would look at your business in this order …

  1. Core Values – Is your business aligned with your Values? If not, how and where can we change things?
  2. Market Potential – Where do you stand in your market? Who are your competitors? What is your share of the market? Is it shrinking or growing? What local factors influence your market presence?
  3. Customer Service – How much of your business is Repeat and Referral? How much training do your front line people have? What skills do they have? How well do they greet, meet, and interact with customers? How are their “closing” skills? What services do you provide? Do your services lean customer-friendly or business-friendly? Do you meet and exceed expectations?
  4. Inventory Management – How is your cash flow? What is your Profit Margin, Turn Ratio, Accounts-Payable-to-Inventory Ratio, Cash-to-Current Ratio, etc? What are the “must-haves” and how was your stock position on those items last year? Where is the fat that needs to be trimmed from the inventory? What systems do you use to keep from over-buying?
  5. Marketing & Advertising – What is your Marketing Message? Is it consistent across all platforms (including the in-store experience)? How can we make that message more powerful and effective? Where are you spending your marketing money? Are there cheaper, better alternatives for reaching the people you want to reach? Are there collaborations that make sense? Are you harnessing all the free publicity available to you?

Notice the order of things. Most businesses come to me saying they need help with their Marketing because they aren’t getting the traffic they want. Yet sometimes the problem is their business isn’t aligned with their values so they aren’t attracting the right types of customers. sometimes the problem is there aren’t enough customers in their market to sustain their business. Sometimes the problem is their service is so bad, those who do visit are telling friends to stay away.

Better Marketing won’t fix those other problems or help the business.

If you want to run your own diagnostics, there are several hyperlinks to articles and blogs related to the thirty questions posed above.

If you want to hire me to run your diagnostics, I’m going through that list in that order until we find the first problem.

There is no single silver bullet to fix any and all retailers, but there is a bullet to slay the specific demon holding you back. I encourage you to run your diagnostics on your own to see if you can isolate your problem. When you do find it, send me an email and I’ll help you brainstorm several solutions to solve your problem on your own or with help.

There is a bullet for you, but it’s buried in the haystack next to the needle.

-Phil Wrzesinski
www.PhilsForum.com

PS I hired a consultant once. He compared my Turn Ratio to Walmart’s and told me my problem was inventory control and that I needed to go to “just-in-time” inventory where I had at most a one-week supply of inventory on hand. My dad hired a consultant. He compared our prices to Kmart and Toys R Us and said our prices were too high and then pitched a total revamp of our sales floor into a circus theme (not sure what that had to do with prices). If you’re going to hire someone, make sure they have extensive experience working with indie retailers. Make sure they have a list like this one, too, that spells out what they’re going to evaluate.

PPS Sorry for the mixed metaphor at the end. It sounded good in my head.

Christmas Quick Tip #10 – Move Stuff Around

For the holiday season I am keeping these posts short and simple. You’re busy. I’m busy.

Here is tip #10 …

MOVE STUFF AROUND

By now you’ve had a pretty good taste of what people want. You already know the slow movers, the stuff you had high hopes for but haven’t seen the sales. Now is the time to move it.

Here is how you sell that merchandise without heavy discounts …

  • Move it around
  • Put it in a better location
  • Give it a spotlight and a sign
  • Treat it like it is special
  • Talk it up to your customers
  • Talk it up to your staff
  • Give your staff a spiff for selling it

It is better to mark it down a little and move it now while you have a lot of customers than try to move it in January at really deep discounts when you don’t have the traffic.

You have from now until Friday to identify those slow movers and relocate them in the store. (On Friday the men start their Christmas shopping.)

Go!

-Phil Wrzesinski
www.PhilsForum.com

PS Remerchandising should already be the busiest thing on your schedule as you constantly shift inventory to make the store look full.

Change Prices, Make Money

I have an unhealthy habit. I drink Diet Mountain Dew all day. I call it my “green tea” to make it sound healthier, but logically I know it isn’t the best drink for me. Especially not two or three—okay, who am I kidding—five or six times a day.

Because of the quantity I drink, I pay close attention to the price. Over the last few months I have seen an 8-pack of 16.9oz bottles priced anywhere from $2.49 to $5.29. Rarely a week goes by that I cannot find them on sale somewhere for under $4.

The fascinating thing to me has been to watch the “regular price.” While the sale price changes from week to week with so many different offers, the regular price has been slowly and steadily creeping upward. Walmart was the biggest jump going from $3.50 to $4.88. Meijer went from $4.29 to $4.99 to $5.29.

In fact a lot of prices have been going up on a lot of things. Some people are blaming the new tariffs. Some are simply chalking it up to inflation.

You probably need to raise your prices, too. Costs are going up. Expenses are going up. You already have a built-in excuse (tariffs, trade agreements, election results, insurance and healthcare costs rising, minimum wage rising, etc.). What are you waiting for? Oh, I know …

You are afraid to raise your prices.

No retailer wants to be accused of price-gouging (even if it isn’t the case). You are certain your customers have memorized the prices of every item in your store and will run out the door screaming if they detect even a whiff of price increases. You are certain that every customer that walks through your door is only there to price-check before going across town or ordering on Amazon.

The reality, however, is quite different.

First, there are only two categories of items people price-check regularly.

  • Commodities
  • High-Ticket Items

Outside of that, only the truly Transactional Customers are price-checking everything else. Let them.

The interesting thing about pricing is that there is actually a way to raise your prices that the vast majority of your customers probably won’t even notice. What if I told you there is even a way to raise your prices that will make some customers think you’ve lowered them?

Yeah, you probably think I’ve had too many Diet Mountain Dews today.

Yet that is exactly what happened for a friend of mine.

After seeing my presentation on Pricing for Profit and learning all the steps to take, she went back to her store and after closing Saturday night, she and her manager changed every single price in the store. Ninety percent of the prices went up, a few went down, some changed only pennies. By Sunday night they were excited at the changes.

But Monday morning that excitement turned to fear. The first customer through the door was a regular. No, not a regular, the regular. She visited their store at least once a week. If anyone would know they raised their prices, she would.

While the store owner and manager hid behind the cashwrap, the regular did her usual browsing. After a few minutes she came up to the counter and said …

“Looks like you guys lowered all your prices. Nice!”

That’s a common response to using the pricing method you’ll find in the Free eBook Pricing for Profit because it is built around your customers’ preconceived perceptions. It is built around making your prices more “attractive.” Quite often that means raising them to match what a customer would expect to see. Yes, raising them!

This is the lowest hanging fruit I can give you. When you make the changes spelled out in this eBook four things will happen …

  • Your prices will look more attractive
  • People will be less resistant to buy
  • Sales will increase
  • Profit Margin will increase

That second bullet point is the kicker. Just like there are things we do subconsciously, automatically, or unawares that turn off customers (hence the Free eBook Ten Mistakes That Sideline a Sale), there are price points that subconsciously turn off the buyer. Even though I have studied pricing for years, I still get turned off from buying when I see bad prices. It’s as natural and automatic as answering “Fine” to “How are you?”

Download the FREE eBook Pricing for Profit and go make some money. You deserve it. And if one of your transactional customers mentions your prices went up? Blame Trump.

-Phil Wrzesinski
www.PhilsForum.com

PS I convinced one other store owner to make a simple price change of her main item from $16.99 to $17.99. Her unit sales jumped ten percent and not one single person complained about the new price. Oh, and she had a whole extra dollar in pure profit for every unit sold. Download the Free eBook Pricing for Profit to see why that worked so well.

PPS Don’t play the price game where you raise it up only to mark it down and change it every week. That’s a game built for transactional customers. You can show your “discount” off the suggested price on your high-ticket stuff, but unless you sell commodities like staple food items, diapers, and gasoline, your goal should be “attractive” prices. Period. Your best customers will pay your price time and time again.

Two Forks in the Road for Sears

In 1988 Walmart opened their first Supercenter in Washington, Missouri. The Supercenter concept heralded Walmart’s entry into the highly-competitive, low-profit, huge cash flow, repeat-traffic driver grocery business.

Two years later Walmart surpassed Sears in total sales to become the largest retailer in America.

By 2004 Walmart was capturing one out of every four dollars spent on groceries and remains the biggest player in the grocery industry.

Walmart ad in Vogue Magazine

In May 2005 Walmart did something completely unexpected. They ran a full-page ad of their new fashion launch in Vogue Magazine. Yes, Walmart and Vogue. No, it wasn’t a designer pajama line to wear when you visited a Walmart. Walmart wanted to do to fashion what it had done with grocery.

There was only one problem. Fashion isn’t a commodity like groceries. One year later Walmart reported declining sales for the first time (at a time when most retailers and the economy were booming). By 2007 they scrapped their foray into fashion and went back to what they did best—sell mass-produced items at cheap prices. When the economy tanked in 2008, Walmart found itself back on top with sales growth and cash flow.

I tell you this story in our discussion of the lessons from Sears filing bankruptcy (part 1 and part 2) because it illustrates what can happen when a company tries to diversify the right way and the wrong way. Walmart’s model is built on selling cheap goods cheaper than anyone else.

Their foray into groceries made sense. Fashion, not so much. When Walmart began selling groceries it vaulted them to the top of the retail mountain. When they got away from what they did best, it caused them to falter.

Sears made the same mistake in the 1980’s and never recovered.

Sears made its living in the same style as Walmart—selling lower-priced items. One difference, however, was that Sears sold “value” more than price. The well-trained staff* would talk you out of the most and least-expensive versions of their appliances by showing you the “value” you got from buying something in-between with a lot of bells and whistles.

Sears also made its living by having stores near urban centers, but also a catalog to serve the less-represented rural areas.

This recipe put them on top of the world.

COMPETITION

While Sears had made a living selling to rural markets through their catalog, Walmart was quickly encroaching their territory with actual stores. Walmart went after the rural markets that didn’t have the retail glut of the urban locations, the same rural markets where the Sears catalog was most popular.

Walmart also used its growing power with vendors to bully them into better pricing to undercut the competition and define the sales in terms of “price”, not “value.”

Whether through hubris or ignorance, Sears ignored this threat and instead focused on diversifying their portfolio.

CORE VALUES

Back in 1930 Sears had launched Allstate Insurance, a value-based insurance company. The success of that led Sears to get into three other industries in the 1980’s—financial planning (Dean Witter), real estate (Coldwell Banker), and credit (Discover Card). 

Like Walmart and grocery, Sears and insurance was a fit. Insurance is a product people have to buy but want to buy it affordably (value). Like Walmart and fashion, financial planning and real estate were not a good fit for Sears because they aren’t sold the same way. Sears was sinking valuable time and resources into ventures that weren’t consistent with their Core Values or their primary business model.

Sears divested themselves of those entities in the 1990’s but by then the damage was done.

Walmart and Kmart surpassed Sears in sales in 1990. Walmart had redefined the lower-priced goods market, begun the serious race to the bottom, and infiltrated the rural neighborhoods where the Sears Catalog had been the lifesaver for so many families.

MAIL-ORDER BUSINESS

In 1993 Sears discontinued the catalog. The catalog business had shifted dramatically in the 1980’s because of the fanatical growth of retail stores in America. Why order it from a catalog when you can pop into a nearby store and get it today? The glut of retail, the cost of shipping, and the 7-10 business days shipping time was enough to kill the commodity catalog shopping that was the Sears catalog.

The only catalogs making it were for specialized companies selling specialized goods not found in stores (LL Bean, Eddie Bauer, REI, Signals, Orvis, etc.).

Then along came Amazon.

In 1994 Amazon launched their site. While there were a small handful of people who recognized the power of the Internet and what it could become (my buddy, Hans, actually pitched Borders Bookstore on the idea of selling online before Amazon launched and was laughed out of the room), I’ll forgive Sears for not seeing the potential.

Kinda …

Sears already had the mail-order business infrastructure set up. Sears already had the cataloging of hundreds of thousands of items done. Sears already had enough stores around the country at that time to set up a BOPIS system that even Amazon can’t yet match. Sears was part of a joint venture with IBM called Prodigy, so it was even involved in the Internet in its infancy!

This isn’t to say that Amazon wouldn’t have eventually cleaned their clock through better data, better customer-centric focus, and better operations, but just imagine if instead of trying to diversify, Sears was instead looking at new ways to do what they already did, only better and with the full use of the newest and latest technologies?

The lesson in all of this is simple.

First, understand fully and clearly who you are and what you do.

Second, don’t let anyone else do it better than you.

Sears let Walmart and Amazon do Sears better than Sears while Sears was busy trying to be someone else. Because of their size, it is a slow, painful death, but the choices that led to the bankruptcy were made in the 1980’s and 1990’s when Sears chose the wrong forks in the road and stayed on those paths too long.

-Phil Wrzesinski
www.PhilsForum.com

PS *I don’t know when it happened, probably in the 1980’s, but at some point Sears got away from their “well-trained staff.” Whether it was a cut in money for training programs, a shift in management away from training as a whole, a cut in payroll, or simply a belief that sales-training didn’t matter (a common thought in the 1980’s when everyone was selling at a high clip), Sears lost this competitive edge it held over the competition, especially Walmart.

PPS I did this exercise a couple times with my staff, but it was a question I asked of myself several times a year. “If I was going to open a store to compete with Toy House, what would I do?” When you ask and answer this question, you find the weaknesses in your model that can be exploited. You find where your competitive advantage is thinnest. Not only does this question help you find where competition could hurt you and shore those areas up before the competition strikes, it helps you constantly explore options for doing what you do better.

Change Your Viewpoint to See Your Business Better

I was sitting in a conference center in Louisville, Kentucky for a presentation by Rick Segel in May 2009.

Rick asked the crowd, “Raise your hand if your product selection sucks, if you just don’t have the goods people want.” No hands went up.

Rick then said, “Raise your hand if your store has lousy customer service, if you’re treating customers poorly.” Again, no hands went up.

One more time Rick said, “Raise your hands if you are gouging the heck out of your customers with your prices.”

Since two surveys I had done showed customers already believed that about us, I raised my hand. “Ooh, me! I do!” Rick tossed me a free copy of one of his books and said thanks for being honest.

The point Rick was trying to make was …

Every business thinks they have Great Selection, Great Service, and Great Prices.

Most of us are wrong. We have either wrongly convinced ourselves of our greatness or justified away our flaws. We think, “If only more people would come through the door they would see how great we are.”

The truth is …

If you were truly Great, more people would come through your door.

Our problem is one of perception. We see the business through our own perception, from inside the bottle. Our customers have a completely different frame of reference. We compare ourselves to our mass market competitors and say, “See? We are soooo much better than them.”

Our customers compare us to every store they’ve ever visited and say with a sigh, “I wish [your store] was more like [my favorite store].”

If you want to find your blind spots, you have to look at things differently. You have to look at your business from your customers’ perspectives.

PRODUCT SELECTION

To improve your product selection, create a “No List”. This is a list of all the items customers come in asking for that you have to say, “No, I’m sorry we don’t. Can I show you an alternative?” (By the way, that or “Can I suggest a store that would have that item.” are the only two acceptable answers when you don’t have a certain product.)

If a customer walks through your doors or calls you on the phone asking for a certain product it is because the customer perceives you to be the kind of store that would carry that product. If you’re constantly saying no and not showing the alternatives you would rather carry, you’re flying directly in the face of customer perception. If there are one or two products on that No List every week, you need to look into either carrying those products or the next best alternative to those products. Otherwise your product selection will not be considered “Great” in your customers’ eyes.

CUSTOMER SERVICE

What percentage of your business is repeat business? Make an educated guess. Your repeat business is a direct reflection of your Customer Service. If your Customer Service is Great, meaning you’ve met her every expectation, she will be back.

What percentage of your business is referral business, people who have never been in your store but came in because a friend told them (or better yet, dragged them in)? This is a direct reflection of how often you did more than a customer expected.

“Surprise is the foundation of delight. If you expected something to happen and it happened, there is no delight.” -Roy H. Williams

If all you do is meet expectations (Great Customer Service), you’ll get some repeat business. To get referral business, however, you have to raise the bar even higher. If you aren’t getting a lot of repeat and referral business, then you don’t have Great Customer Service in your customers’ eyes.

One last thing to consider … If your store isn’t the store everyone points to in town for having the best customer service, your service isn’t good enough, yet. (And if it is, then the bullseye is on your back so you better be doing something to keep raising the bar.)

PRICE

This is one area where you’ll have a hard time changing perception. When we did our surveys we were regularly considered “Over-Priced” and “Expensive” compared to Walmart, Toys R Us, Meijer, and Target. All four of those stores talk about low prices and saving money in every ad they run. There is a built-in perceptual bias that all indie stores are more expensive than their mass competitors. The interesting part of the survey for me was that we also owned the word “Value.” That’s when I knew my prices were okay. Yes we were Expensive because we carried more expensive items. But the customers saw the Value in those items.

Remember, too, that not everyone shops on Price. Make your prices competitive and sharp, but more importantly, hone up on the Product Selection and Customer Service elements, and people will see the value you offer.

Every store thinks they have Great Selection, Great Service, and Great Prices. Most stores are wrong. You can’t measure whether you have Great Selection, Great Service or Great Prices from any of your spreadsheets. You can’t see it from behind your cashwrap. You have to look at it from the customers’ eyes. That’s the only point of view that counts.

-Phil Wrzesinski
www.PhilsForum.com

PS You can win over some of the perceptual bias on Pricing. The blueprint is in the Free eBook Pricing for Profit. Most stores who have followed this pricing have reported back how customers perceive their pricing to be much more competitive. All of the stores who have followed this pricing have reported back increases in profit margin because of it. What do you have to lose?

PPS Even if you think your Customer Service is Great, ask yourself …

  • What would happen if your staff was better at building relationships with your customers?
  • What would happen if your staff was able to close more sales?
  • What would happen if your staff was able to increase the average sale?
  • What would happen if your staff learned to work together better as a team?

How would that change things for you?

One downside is that you would be busier. You’d have to write more orders (increasing your turn ratio and your cashflow). You’d have to look into hiring more people to handle the increased traffic. You might even have to consider a new location to expand your business. If you’re okay with those hassles, contact me to run The Ultimate Selling Workshop with your team.

Is it the Best Place to Spend Your Money?

“It’s only $400. What have you got to lose?”

If you’ve ever run a small business you’ve heard that question before, usually spoken by an advertising sales rep trying to sell you on some new marketing fad, or maybe an add-on to a package you’ve already bought. You fall for it, too. I know I did, several times.

You fall for it like I did for one of three reasons:

  • You didn’t have a marketing plan
  • You didn’t have a goal, or expected outcome you knew you wanted from your marketing plan
  • You didn’t do the ROI and truly answer that question
Close up of a pen and blank check

What have you got to lose? For starters, the $400 check you just wrote. Secondly, the chance to spend that $400 more wisely. The better question to ask is …

“Is this the best place to spend that money?”

When you have a plan, you have a better idea of where you want to spend your money, how that money will be used, what you hope to accomplish, and how you’ll measure the results. You’ll also have a budget that you’re checking regularly so that you’ll know if you even have that $400 to spend in the first place. When I started budgeting, I had set amounts to spend in certain places where I knew I would get the best bang for my buck. I also had some flexible money for opportunity buys.

When you have a goal or expected outcome, you have another measuring tool. When I finally got smart about my budget, the question I would always ask before spending that flex fund was, “Would this money be better spent on this new thing or just added to the money I’ve allocated elsewhere?”

The ROI is the hardest question to answer. One truth about marketing, advertising and even sales training is that there isn’t a simple plug-and-chug equation that says if you spend X your results will be Y. Anyone who tells you otherwise has a good ROI—for him, not necessarily you. At best you have generalizations based on previous experiences, trial-and-error, and hope. Yet being able to figure out the ROI, even in the most general sense, is the only way to really know what you have to lose.

DOING THE MATH

I’m going to do a math problem to give you an idea of how to calculate ROI. To do it, I will be using some basic assumptions. You can adjust your numbers accordingly.

  • Traffic = 200 people/day
  • Conversion rate = 20% (40 people/day)
  • Average Ticket = $50
  • Sales for 30 selling days = $60,000 (40 people x $50 x 30 days)
  • Profit Margin = 50% ($30,000 on that $60,000 in sales)

If we do the math backwards, it might look like this: I need to do $60,800 in sales just to break even on the $400 I’m going to spend. Realistically, though, to make it worthwhile, I’d like to make back at least an extra $400, so I need to do $61,600 to get any kind of return worthwhile. Therefore, at $50/per ticket, I now need an extra 32 paying customers over the 30 days. Since my conversion rate is only 20%, however, I need to attract an extra 160 customers over the month just to break even. So the real question becomes, “Will this $400 attract an extra 5-6 people a day or more (3%)?” Considering one of the most highly measured advertising models—direct mail—has only a 1-2% expected return, that might be asking a lot of any marketing effort, especially something new and untested.

Remember, too, that the effects of this advertising will likely end with the season. If it isn’t already in your budget, being able to do the math like this can save you from losing a lot.

You can play around with this basic formula to find out all kinds of cool things. For instance, if your Profit Margin was 52% instead of 50%, you’d have an extra $1,200 in your pocket. (To find out how to increase your profit margin through a better pricing strategy, download the FREE eBook Pricing for Profit.)

What if you raised your conversion rate from 20% to 22%? (By the way, that’s converting 4 out of the 160 people that didn’t convert before.) Now, instead of 40 people a day, you have 44 paying customers. Over 30 days that equals $66,000 in sales, or an extra $3,000 in profit.

What if you also raised the average ticket just 2% to $51? Now you have 44 people x $51 x 30 days = $67,320 in sales, or $3,660 in extra profit.

Wait. Did I just show you the ROI for The Ultimate Selling Workshop? Maybe I should add in a few other benefits.

Unlike most advertising that ends when the season ends, Sales Training keeps creating results long after the season ends. Your staff will learn new skills that they will use the rest of their lives. You’ll see your culture change for the better as your staff focuses more on relationship-building, not only with your customers, but with each other. They’ll also be more intrinsically motivated because you’ll be offering them Mastery and Purpose, two of the three elements (along with Autonomy) that Daniel H. Pink, in his book DRIVE, says motivates people to do their best.

Better Sales Training also leads to happier, more satisfied customers which leads to more Repeat business as your happy customers want to come back more often and Referral business as those happy customers tell all their friends about you. Yes, you can actually “buy” word-of-mouth by teaching your team to be better at selling. It is the gift that keeps on giving.

Here’s one last nugget for you to chew on …

If your customer service is substandard—and let’s face it, a lot more stores have lower levels of service than they’re willing to admit—then just increasing traffic through advertising will only help speed up your demise as more and more people will talk about you in a negative way. Shore up your Customer Service first. Teach your staff how to build relationships, how to surprise and delight, how to convert more of your traffic into paying customers, and how to make your customers happier. Then you’ll have all the money you need to attract more people through the door.

The ROI is there.

-Phil Wrzesinski
www.PhilsForum.com

PS If your business is going to do $60,000 or more this December, The Ultimate Selling Workshop is a really good deal for you. In fact, the higher your traffic count, the better the investment becomes. I’ve shown you how this pays for itself and then some with just a modest growth of 2-2.5% in conversions and average ticket. Now do that math over the whole year to see the true benefit.

PPS Yes, you can download the FREE eBooks on Selling that I’ve posted and you can read my blogs to do this yourself. You’ll save the $2,000 you would have spent on me. You’ll instead spend it on time and energy planning your own trainings and extrapolating all those idea to your industry. Or you can hire me and not only will I do all that work for you, there is something about bringing in an outside expert that gets your staff fired up even more. They might love you, but they’ve heard you speak before. I know when I brought in new people to my meetings the staff perked up and listened even better. The introductory price ends at midnight September 30th. Let’s make this your best December ever and kick start 2019 all at once.