Hello, and welcome to the Small Business University audio presentation of the month. This monthly CD web series represents yet another step in accomplishing Grandy & Associates’ vision of teaching small business owners how to run profitable companies. Each month, a different national speaker or business owner shares dozens of cost-reducing, profit-increasing ideas to help you become a more profitable company.
Do you like pizza? Most do. Would you like to pay less for pizza than you used to? Again, the answer is yes. Now, if everyone in town offered any size pizza, any toppings for $10, would that make you happy? The answer is again, yes.
However, with everyone offering the same price, you might just try another company’s pizza. And guess what? You might find the other company’s pizza really is better than the one you’ve been buying. Bottom line, your old pizza place just lost a customer.
Pizza Hut did just what I described, and the net result was that they ruined the market. Let’s learn from Pizza Hut’s mistake, and from two amazing real-life watch companies called Rolex and Timex. Tom Grandy, the founder of this program, has been teaching companies how to run profitable businesses for over 24 years.
His observations on what Pizza Hut did just might help you run a more profitable company. Get ready to learn a few basic foundational principles that can help you better manage your company during tough times. You’re going to enjoy this presentation.
I’m sure you’ve heard the statement before, what’s done in the dark will be brought to the light. Simply stated, if you try to hide something, sooner or later it will come to the light where all can see. It’s happening all around us.
Most of us were aware employees of the major automotive manufacturers were given discounts if they purchased a company car from the company. I have no problem with that. As a matter of fact, I think it’s a great perk.
However, when the automobile industry went south, all the major manufacturing companies began offering employee pricing to the general public. The price of brand new automobiles was being discounted thousands of dollars. These were supposedly the same discounts employees had been given for years.
Not all about you, but from my standpoint, two things happened. Now I didn’t have to guess what discounts employees received. I knew what they were.
The discounted pricing came to light. My second thought was, if they can discount that much and still make money, the general public, including myself, has been ripped off for a lot of years. Now, you don’t sell cars, so this may not be a big deal to you.
How about this one? Every week my wife comes home from the grocery store, usually very upset. Why? She noticed the packaging had changed on some of the products she’d bought for years. Upon closer scrutiny, she noticed two things.
First, the quantity purchased had been reduced, and secondly, the price either stayed the same or, in most cases, increased. Okay, again, most listening to this presentation, don’t buy things at the grocery store. We’re guys, so it’s no big deal.
Just buy what you need. Well, over the last few weeks, I’ve noticed something in our small town of Owensboro, Kentucky. At least once a day, I drive down Frederica Street, the main street in town.
As I’m driving, I pass a pizza hut. A few weeks ago, the owners had stuck a flag banner along the street that stated, Any Size Pizza, Any Toppings, $10. That caught my eye.
My initial thought was, this is a great deal. The pizza I usually order runs $15 unless I have a discount coupon. Now it’s time to test the advertisement and have a pizza.
Sure enough, Any Size Pizza, Any Toppings was only $10. I instantly forgot about the other places we buy pizza, because Pizza Hut was the place to be. Quality food, and the price was right.
I was so excited, or cheap, that my wife and I took my pastor and his wife there for dinner. They too were truly amazed. Well, guess what happened over the next few weeks? Now every pizza place in town was offering Any Size, Any Toppings, $10.
Guess what? Pizza Hut didn’t look so great anymore. Now everybody was doing it, and I was beginning to feel about the pizza industry like I did about the auto industry. I’ve been paying $15 for large pizzas for years, and now everybody is selling them for $10.
Boy, had I and the general public been ripped off for a lot of years. If they can make money at $10, then they must have been making a huge profit at $15. What started out as a great idea from Pizza Hut had suddenly ruined the industry.
Sound familiar? The economy has been down for the past 12 to 24 months. What have most contractors done? Right, they’ve lowered their price. What are we now telling the customer without saying it? Right again, we’ve been ripping you off at the higher prices we used to charge.
And guess what? When one contractor lowered his price, so did the guy down the street. Does that sound familiar? Oh yeah, Pizza Hut ruined the market. And we’re doing the same thing.
The reality is that most contractors have lowered their pricing without, without making the corresponding reductions in their overhead cost. The net result was predictable. We’re now underpriced.
Now what happens? The more we sell, the quicker we go out of business. Ouch. If you’re selling based on price, you may as well close your doors today.
The low-priced guy always, yes always, loses money. The low-priced guy will go out of business. It’s just a matter of time.
In today’s economy, the answer is not cutting prices. The answer is differentiating your company from others in ways that you’ve never done before. Let me say that again.
In today’s economy, the answer is not cutting prices. The answer is differentiating your company from others in ways you’ve never done before. Now let’s change your thinking a bit and focus on two amazing watches that have been very successful for a very long time.
It’s Rolex versus Timex. If I ask you, what’s the main difference in a Rolex watch versus a Timex watch, most would instantly say price. You’re right.
A good Timex watch will normally cost less than $25. And a good Rolex can easily run you $25,000 to $50,000. Guess what? Both watches will tell you what time it is.
Yes, I do understand that the Rolex watch will probably not lose a second over the period of a year, while the Timex may need to be reset every couple of months since it lost a minute or two. But hey, they both do a pretty good job of telling you what time it is. So what’s the difference in the two watches? Let’s look into a few areas of difference and see if you can draw some conclusions about your market and how you approach your customer.
First of all, features versus benefits. A feature is what the product does for you. The benefit is the real or at least the perceived value the feature provides.
The Timex watch sells features. It keeps pretty good time. When it comes to buying a Rolex, the feature is given.
It keeps great time all the time. Rolex sells the benefits. How does owning a Rolex make you feel? What does owning a Rolex tell your friends and your business acquaintances? What about the long-term value? Which watch will maintain or lose value, while the other maintains or increases in value? Which watch was an investment versus a purchase? Think about each of these questions when it comes to what you offer in your marketplace versus what others offer.
What’s the profit margin on each? I don’t really know the answer to that question. However, I suspect there is a much greater profit margin in selling a Rolex for $50,000 that keeps time versus a Timex for $25 that also keeps time. What do you think? How many Timex watches do you suppose you would need to sell to make the same total net profit earned by selling one Rolex? That’s not to say that Timex has a bad business plan.
Their plan is simple, and it works for them. Make a buck on every watch and sell a zillion of them. There’s nothing wrong with that business plan.
Their business plan is set, and it works for them. And, you ready for this? And, they didn’t change it based on the current economy. Did you hear what I just said? The business plan that they have is set, it works for them, and they didn’t change it in the midst of the current economy.
To my knowledge, they have not lowered their prices during the current recession. Now, look at your company. How many lower priced pieces of equipment do you have to sell to make the same profit you would have earned by selling one high-end piece of equipment priced properly? How many sales presentations did you have to make in each case? How much total time and energy did it take to sell five lower priced units in order to make the same profit that you would have made by selling one properly priced high-end unit? Where do you buy each watch? Timex watches are sold everywhere.
You can get them at Walmart, Kmart, even the dollar store. Where is a Rolex watch sold? You’ll only find them at very high-end jewelry stores or, in some cases, stand-alone Rolex stores. Rolex does not go door-to-door selling their watches.
The customer comes to them. Why? The customer knows the value, or at least the perceived value, before they come to the store. Their customers pre-screen themselves before they contact the Rolex outlet.
Guess what? Your customers are doing the same thing. That alone is food for thought. What’s the customer’s perspective of your company and what you sell? Now, let me mention one last thing.
I doubt Rolex customers do any haggling with the jewelry store clerk over price. The value is what it is. The price is what it is.
If the customer wants to pay less, they have an option. They can go to the Dollar Tree or Walmart and buy a Timex. Get the point? Who’s their customer? Timex sells to everyone.
Rolex sells to a very select, high-end clientele. They target market the client that has both the ability and the desire to purchase their product. Who do you market to? Price really does become an issue if you’re trying to market a Rolex to a local factory worker.
No negatives intended. What about your company? If you’re marketing to a clientele that neither has the desire nor the money to purchase what you offer, the deciding factor will always be price. If price is the determining factor, you will never, never be profitable in any market, good or bad.
What about the wow factor? When Mary and John purchased a Timex watch at their family dollar store, who did they tell? Chances are very good that they never mentioned their purchase to anyone. However, when someone just spent $25,000 to $50,000 on a brand new Rolex watch, I really do believe they will find some way to tell somebody about it. Why? They’re proud of their purchase.
They want the world to know they own a Rolex watch. When asked why they purchased it, they’ll come up with lots of reasons, valid or invalid, of why they invested that much money into a watch. In essence, the Rolex purchaser just became a Rolex customer service rep.
Wow, that’s neat. What do your customers tell your friends about the new equipment they just installed? Once again, a little food for thought. Timex and Rolex both have their places.
The question is, which one do you want to be in your marketplace? My hope is that you desire to become a Rolex type company in your marketplace. If you become a Rolex company, your products and services will not only stand out amongst all your competition, but there’s a few wonderful side benefits as well. You’ll have happy customers that have become unpaid advertisers for your company, and you’re making a reasonable profit.
Those are some really great benefits. I’ve heard it said many times that when the customer says no, they’re not really saying no. What the customer is really saying is, you’ve not shown me enough value in what you’re offering to justify the price you’re asking.
Bottom line, you can’t be like every other company in town and expect to sell similar products at a higher price. You must, yes you must be different in many ways to justify above average pricing. With that said, let’s look at some ways to make your company a Rolex type company.
Number one, integrity. This one is simple, but it’s most often overlooked by many trades companies. Integrity within the trades industry boils down to this simple statement, do what you said you were going to do when you said you were going to do it.
Now that may not sound unique, but in today’s world it is. You have no idea how many customers tell us over and over again that their contractors told them they would be at their home at this particular time or this particular day and never showed up or even called. If you don’t have integrity in what you do, the rest of what I’m suggesting will be pretty useless.
Rolex watches have outstanding integrity. Market the right clientele. Quality customers will pay more and that’s a fact.
Rolex realize that everyone is not their customer. We need to learn that same thing. How you market is important.
Who you market to is even more important. If you’re portrayed as the low price guy in town and you market in average or below average neighborhoods, guess what your customers will be. Rolex doesn’t market to the public in general because they realize not everyone wants or can afford their product.
Their solution is to target market the customer base they want to sell to. Marketing people will tell you over and over again that it’s better to market 15 times to 500 potential customers than it is to market to 2500 customers three times. Pick your target customer and market to them continuously.
That is what Rolex companies do. Next, clean up after the job is done. Here’s another no brainer that can set you apart.
Train your techs to pick up each day when doing an installation job. Also clean up after every service call. We work with one plumbing company that has an internal hourly rate well over $300 an hour.
One of the little things they do that their customers just love occurs after the repair is completed. The tech then returns to his or her van and gets a vacuum cleaner and goes in and cleans up after themselves. Most customers’ jaw drops when they see that tech spending an extra 10 minutes to vacuum up after they’ve completed the job.
How many people do you suppose they will tell? The answer, lots. This one thing will make you a Rolex company in the eyes of your customer. Next, invest in customer service training.
Bob Daniels performed a study and noticed that most happy customers comment not on how well the technical job was done, they expected that. Their comment was how nice, yes how nice the technician was. Good manners coupled with outstanding customer service does make a difference and it translates into happy customers and higher profits.
Spend a few dollars and invest in some outstanding customer service training for your technicians and for your office personnel. I know you’ve heard this before but I’ll repeat it again. Some say, what happens if I invest all that training into my employees and they leave? And the response, what happens if you don’t train them and they stay? The person talking to your customer face to face and or on the phone is your company to the customer.
Investing in customer service always, yes always produces additional profit. What about happy calls? Do you call your customers a couple of days after the service call has been done and or after a major installation has been completed? You should. This kind of call lets the customer know you appreciate their business.
It’s also a wonderful time to defuse minor problems before they become major concerns. Rolex type companies do this regularly. What about giving a gift after a major installation? If your customer just spent two to ten thousand dollars on a major installation, it just might be a great idea to say thank you for your business.
Besides that, a nice thank you gift has a potential of major networking within the neighborhood and or within the office environment. What do you suppose will happen when the wife receives a dozen roses at her place of work? How many friends and neighbors will be told that ABC Contracting Company sent them a thank you letter with a fifty dollar gift card to one of the best restaurants in town after they installed their new furnace? Thanking the customer and providing something tangible creates very happy customers that will tell others of their experience. How do you pay for it? The normal way, which is to build it into the cost of the sale.
Remember, the customer pays for everything. Rolex pricing provides the company the profit they need to dazzle the customer. Let me repeat that statement because it’s a key to long-term profitable growth.
Rolex pricing, that is profitable pricing, provides the company with the profit they need to dazzle the customer. Have you noticed anything in common about these suggestions? None, not one of them, none involved lowering the price. In fact, most will actually increase your pricing.
Again, pricing is not the problem. Provide enough value for the money invested, that’s the real issue. Anything you can do that is over and above what your competition offers sets your company apart.
It also justifies a higher price. One last footnote, remember Pizza Hut? A few weeks after the ten dollar special was advertised, we returned to Pizza Hut. Guess what? There were less than a dozen customers in the whole place.
Everyone’s prices were the same, so why go to Pizza Hut? Now for the rest of the story. A few days ago, I called Pizza Hut about placing a carry out order. I simply asked, is the same ten dollars for any size pizza, any topping still good? And guess what? I got an immediate and resounding, no, on the other end of the line.
Surprise, you can’t make money at ten dollars for any size, any topping. Sadly, however, many of their customers tried other pizza places when everybody’s prices were the same, and guess what? Some found they liked the other place’s pizza better. It’s called a lost customer.
Many companies have actually increased sales and profits over the last couple of years. Those companies all have two things in common. First, they did not lower their prices, and secondly, they invested in customer service and sales training.
The combination of those two created profitable sales. Give those two some serious thoughts. Give us a call at 800-432-7963.
The vision of Grandy and Associates is really quite simple. We teach companies how to run profitable businesses. For more information on how we do that, check out our website at www.grandyassociates.com, or give us a call at 877-202-8891.
The Small Business University audio series is produced and distributed by Grandy and Associates. If we can be of service to you, give us a call on our toll-free line, 877-202-8891. Until next month, remember, invest your time and invest your money in those things that will reproduce.