The Dangerous Games People Play: Price Negotiations

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Price is one of the most deadly weapons in the marketing mix.

One of  the “4 P’s” of marketing, and one that creates some of  the most pressure packed situations in business.

  • It determines 50% of a company’s profit margin.

  • Depending on your market share and/or industry, it is also the most controllable decision someone can make to influence their outcome of profit/loss.

  • It is the most easily compared element of the marketing mix against a competitor.  Evaluating $499 vs. $549 is easier than comparing product reviews, technical features or “quality” (perceived or real)

  • Could be the most “emotional” element in business.

Why?

Let’s say you are quoting on a business, and it’s somewhat of a “bid” process, meaning you are quoting against different competitors selling products that have SOME differentiation, but generally viewed as a commodity.  So Price is a MAJOR factor, but like all competitive situations, everything influences the outcome:

  • Quality and service track record

  • Terms, flexibility

  • Relationship:  How will your bid affect the relationship?  Does that matter?

  • Risk of loss:  If you lose, how does your business look?  Better or worse?

All situations have a different ranking.  If I were bidding, here’s what I’d be looking at:

*  How many different factors influence a buying decision?
*  Rank them from high to low.
*  Know where you score at all times with your customer.  How?  ASK THEM!

Also?[Continue Reading…]

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Branding Case Study: The Prize of Emotional Connection

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Starbucks vs. Dunkin Donuts

image credit: http://emilycontois.files.wordpress.com/2013/01/coffee-scale.png

I’ve always been a Starbucks addict.  The brand has been part of my daily routine for about 15 years and I bet I’ve been the first ring at 5:30am more than 100x’s in over 4 locations in 3 states.  In short, I’d consider myself a loyalist.  The routine stopped in March 2014 when I moved to NJ to acquire LM Foods and there just isn’t one between Pt. A (Gym) and Pt B (company).  The experience has let me learn a few things as my Venti Black Dark Roast went bye bye…..

I’ve become what marketers call an “experimenter.”  Open to new experiences.  A coffee Swinger if you will.  In general, Dunkin Donuts probably gets 75% of my coffee $’s, but that is probably falling to 1/3 fast.  For me, they are not Starbucks for a variety of reasons:

  • They simply haven’t figured out the “Third Place Concept” and the vibe that goes with relaxation.  I think I’ve taken advantage of the Starbucks leather seats <10% of the time.  But the vibe, even if I only feel it for 90 seconds matters.  Life is hectic, and escapism matters.  
  • Dunkin can’t seem to understand that selling 2 day old bagels is not smart.  And they make this mistake often, and when you tweet them about it?  Black hole, no response. Why bother having a Social presence if you fail to engage?  
  • Dunkin is one of the great franchises in America.  But you simply never know what kind of experience you will get when your greeted by your Dunkinista (is that a word?). When I’m one of the first customers showing up when its still dark outside, and am on trip #30, shouldn’t you know who am?  

There’s a funny thing that happens when a Brand does not earn an EMOTIONAL connection with its consumers:  They start to wander.[Continue Reading…]

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Simple Innovation That Works…..Coca-Cola Summer of Sharing

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Innovation does not need to be a massive technology breakthrough.  Sometimes its as simple as a tweak to packaging that gets people talking.

In the past 2 hours, Coke has broken through in my life.  I get a text message from a friend with a diet coke can.  Then my daughter runs up to me with a big smile and says “DADDY!” pointing to the can.

IMG_0495

 

Then my son runs to the refrigerator looking for more cans with different words.

Then a facebook post from a friend, copying 2 other friends with the word “Buddy” on the can.

This is Coca-Cola, the company with Millions (if not billions) in annual media spending.  And what did they do?  They tweaked the packaging.  And multiple people are buzzing, sharing and smiling.

What’s the cost of this tactic vs a Superbowl ad?  Which is more memorable.

Striking the emotional chord and getting people to talk positively about a brand or service will always beat the pricey “throw money at it approach.”

Kudo’s to the Coca-Cola company.  The “Summer of Sharing” campaign is a winner, at least in this household.

http://www.coca-colacompany.com/press-center/press-releases/coca-cola-celebrates-a-summer-of-sharing

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HUSTLE or BUST: Not Just a Blog Name Anymore!

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Sometimes the walk up to the starting line takes a while….4+ months that started with a series of exploratory conversations with some accomplished pro’s turned into an acquisition of a Food Company.

Buying a business is a bit like training for a marathon.  Lots of preparation, long runs, and the lead up to a massive test of endurance.  Not an easy process, and one that requires skill, and like most things in business, a great team is critical.  

I have been privileged to work with a great Private Equity team that worked tirelessly on the deal and will continue to add value over the years ahead.  In life, who you surround yourself with is one of the life’s greatest difference makers, and the team I worked with are nothing short of life’s A-Players.  Can’t say enough good things about my partners at Salt Creek Capital.

With this acquisition comes a series of life events

  • Moving back home to NJ after 8+ great years in Memphis
  • A transition of company and roles:  From CMO of Monogram Foods, to the new role of President/CEO for a niche manufacturing company.
    • More to follow on specifics and how this business will continue to do great things and new things in months ahead….

What else comes with acquiring a business and assuming the top role?

RISK.  Putting your name and every financial resource you have on the line.  The banks call it a Personal Guarantee (of the debt).

Over a year ago I started Hustle or Bust.  I loved the name, and it came to me quickly.  

If forced to describe my career, and maybe life in ONE word, HUSTLE would be that word.

Hustle is 100% controllable, it’s a choice.  I’ve always believed that you either Hustle, or BUST.  Unless you’re an absolute genius, lucky, or born with a silver spoon, Hustle is mandatory.

Now for the BUST part:  Back to guaranteeing debt, RISK.

First, RISK is present in everyday life whether you sign your name to it or not.  It’s why we have emergency funds.

What’s the worst thing that can happen to someone in a job?  You get fired.

That’s risk, you just didn’t sign your name to it.  It happens to very talented people, sometimes without cause.

Is risk scary?  Yes.  Is it manageable?  Usually.  

Becoming an entrepreneur is not for everyone.  When you sign personal guarantees you are basically saying that you are comfortable with the worst possible financial outcome.  Not many can stomach that kind of risk.

Life and careers are about a series of choices.  Weighing the scales of what is important, understanding risk, and how that risk compares to reward.  And a host of intangibles always factor into the process.

Today marks a turning point in this blog.  When a life event or transition happens, it fundamentally changes your point of view, outlook and perspective on things.  Having the good fortune to lead a company, the responsibility, risk and opportunity to build something great……I would say that qualifies as a defining “life event” that is sure to change my outlook and view on the world.  

I hope you join me on this journey and share your insights and comments as well.

Here’s wishing all of you success on YOUR journey.

Life is short.  May you always live each day with HUSTLE…..or Bust.

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The $ Shave Club: Disruption in Action

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Sometimes disruption happens right under your nose.  Take a look at the men’s razor blade category:

  • Needs to be continuously replenished.
  • Massive market.  Let’s call it 50% of the world’s population.  Maybe a bit less if you don’t mind facial hair.
  • Huge barriers to entry.  How can you get into this category?
    • You’re not just going to “up and build” a factory, it takes massive capital and expertise
    • Your also not going to unseat one of the established brands (Gillette) and their massive branding investment.  
    • If you could conquer these 3 barriers, you need to get the consumer to vote, which means you need access to distribution.  In CPG, that’s the health & beauty buyer at the retail chains.

So how do you gain a slice of an industry dominated by the 800lb Gorilla? 

  • Find a source of supply.  Nearly every category has Private Label & Contract Manufacturing supply.

  • Forget the middleman in the distribution chain, go directly to the consumer.

  • Build your own brand, unconventionally.  Use social media, be edgy, create stories.

  • Keep expenses LOW.  To the bone….

In other words, do everything DIFFERENTLY than the industry leaders do.

How do you know when the big guys are sleeping at the switch?  They begrudgingly acknowledge the up-start.  Then they immediately cling to their existing business model, defend it and ignore the very threat in the first place.

  • “We have products at those price points too!”
    • Maybe, but can I find them when 80% of the shelf space is covered with your more expensive stuff?
    • But you won’t deliver it to my doorstep will you?  Of course not, that would annoy the retail buyers wouldn’t it?

You see these types of up-starts more and more.  SODA stream comes to mind.

Sodastream

If Coke or Pepsi do not have a team figuring out how to buy and integrate this company into their model they would need their heads examined.  When I say “team”, I’m talking about a team of less than 10 people.  In an urban office, FAR away from headquarters, made up of strategic thinkers with minimal internal experience within Coke or Pepsi.

Sometimes experience is what prevents the 800lb gorillas from seeing a disruptive model.

Blinders off.  

Disruption lenses on.

http://online.wsj.com/news/articles/SB10001424052702303624004577338103789934144

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Understanding Innovation: Learn From What “Wows” You!

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Innovation is easy to learn from real life experience.  How?  Find products you consume that simply “wow” you, make you talk and make you want to learn more.  Experience them, research them, and reverse engineer to YOUR business model if there is something worthy of “borrowing.”

The process is simple:

  • Find a product you use that makes you talk about, brag, say “try this!”

  • Study the packaging, one of the most critical elements of branding

  • Do some basic research:  Check out the social channels, website, basic Google news/buzz

  • Write down what’s working for the product, ultimately what can be “borrowed.”

Innovation does not need to be a R&D break-through to work.  It also does not need to be driven by costly third party agencies that have a knack for mystifying the process.

But it does need to be special to matter.  More importantly, all the elements of the marketing mix must come together to create a brand loyalist.  Here’s one that nails the equation.

My wife brought the following home:  Popcorn Indiana, “Black & White Kettle corn.”  It was so good the devil must have made it.

Popcorn Indiana Black & White Popcorn

We are not big popcorn eaters, but we are always hunting for the new & different.  This hit the mark.  The combination of chocolate and salt is out of this world.  Guess what else is?

  • The packaging – There are so many health & “quality” claims I’m almost convinced I’m eating a banana.
  • The social media call-outs.  Even better?  Their social media engagement.  They get that social without being “social” is useless. They clearly have standards in place on response time, engagement, and are clearly having fun.  And why not, this is popcorn right?
  • Their website and product line-up – Flavors and unique combinations is what they do; now I want to try the others.  Multimedia, clean images, they simple messaging very well.
  • The founder of the company is somewhat of a serial entrepreneur…..you can learn a ton by learning about a founder.

I don’t know specifics about the Popcorn category, but it’s fair to assume since it’s a salty snack that it is dominated by big players like Frito Lay.  Low cost producers with massive distribution networks and marketing spending.  Can’t out-spend or “out-muscle” the big boys.

But you can always build a winnable plan that doesn’t confront them head to head.

Innovation should be at the top of the list for differentiating a business.  Being different and unique always serves a simple purpose:  It makes direct comparisons difficult.

When that happens, price is less of a factor…

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“I Went to School for THIS?”

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Heard that before?  Better yet, have you SAID it before?

Translation:  This is not what I expected.  Not what I should be DOING.  Maybe not what I WANT to be doing.

It’s said so often in business it almost becomes a “throwaway line”, a conversation starter.

A “throwaway line, or conversation starter” is one end of the pendulum.  On the other end?  It’s defeatist. Borderline arrogant and dismissive of something that actually has value.  All jobs & roles have value.

In the Consumer Packaged Goods Industry (CPG), one of the most common areas you will hear this is a retail store level “sales” position. Notice that “sales” is in “”.  Many would argue that it’s not a sales role, but glorified stock person for the store you’re calling on.

A grocery store re-set is tough work.  Pulling off every single product on the shelf, and there are a bunch of them, cleaning the shelf, and re-setting it to what a new Planogram (schematic of what item should be shelved in which position) is physically draining work.  Guess what else it is or is not?  I can think of 4 things…

  1. It’s tiring, and sometimes back-numbing.  Physical work!
  2. It’s thankless.  Nobody gives you an “atta boy!” for this.
  3. It is NOT sexy.  They didn’t talk about this in your Marketing classes….
  4. No big thinking, fancy charts showing how brilliant you are crunching data and pitching a new market opportunity.

In short, the retail sales experience, and the re-sets that accompany them are in short, HUMBLING.  They also happen to be CRITICAL for anyone that aspires to Marketing or Sales leadership in CPG.  Very few college grads that start in this role rave about it.  Most view it as a stepping stone before moving onto an account sales management role where you are managing budgets and truly “Selling” to headquarter buyers.  As some would say, that type of work uses their degree.

Notice the 4 things I mention above……all have a somewhat NEGATIVE bent to them.  They were the first realizations that were measured against expectations, albeit self-imposed.

What about the things that EXCEEDED expectations?  

  1. Relationships:  The grocery store manager in south Boston that you went to a football game with, as a thank you for helping win a display contest.  The same one that appreciated the congrats note for getting his EMT certification
    • The team members who appreciated you covering for them on vacation…
  2. Becoming a trusted source for sales management, the “eyes and ears” for what’s happening in the stores.
  3. Seeing the urgency of a quarter end “push” to make the team sales number, and playing a role trying to help generate real business results, do my part, etc.

Every profession has their ground floor opportunity.  Every profession has groups of people that aspire to come OFF the ground floor to greater heights.

It’s as American as apple pie.

What is critical when mentoring a new generation of talent is to help them see the big picture and not DWELL on their ground floor opportunity

  • Expectations, whether fair or not have a tendency to damage your own morale, so check them quickly.  Hit the “re-set” button

  • Show up, answer the bell.  ALWAYS.

  • Every person they encounter will be a teacher:  They will teach them on what to do, not do, treat others, and YES, in some cases how NOT to treat others.  Bad seeds do exist, learn from them too.

  • Establish trust:  Do what you say you will do.  Do it with a smile.  Repeat every day.

  • Over-deliver:  Meet and start to exceed expectations.  Ask for more.  Ask to make more of an impact.

 

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Does Price Really Matter?

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Price will always play a role in the buying process.  But effort and thoughtfulness are also considerations when your buying gifts. Consumer psychology is challenging because it all factors into the decision process.

Tn. liquor stores should take a page from the wine merchants in the great state of Florida.  They worry about competing, keeping customers happy and controlling what they can control.

While on vacation in Atlanta, I had the pleasure of re-connecting with a great friend for dinner.  In preparation, I killed 2 birds with one stone, taking a long walk and finding a great bottle of wine to bring to their home.

Stop #1, the local Publix Supermarket where wine is sold.  Publix is one of the southeasts top retailers, catering to a slightly more affluent shopper than the average retailer.  They had a full aisle wine, probably about 60′ long, 6 shelves high.  That’s 360 linear feet of wine selling space, no small amount amount of square footage by any measure.

Publix Atlanta Wine aisle

Image Credit: cmgdigital.com

What did I see?

  • Practically every major national, well advertised brand known to man.
  • Great prices.  Did not see any bottle that was “higher” than the best price I can remember in other outlets.  Not cheaper, but certainly not higher either
  • There was simply 0 “point of purchase” material other than clearly marked prices.  Anybody that shops for wine is used to “Wine spectator points” or other informational literature by multiple bottles of wine.  You could not distinguish this aisle from the salad dressing aisle.
  • Surprisingly, I don’t remember seeing one bottle of wine over $20 per bottle.  Seemed nearly impossible that with that much selection, not ONE bottle pushed north of this threshold?  I almost picked up a bottle of Coppola Red for $20, but decided to pass.  I left the store.

Publix has a formula for selling the brands with the biggest national ad budgets (and consumer awareness as a result).  It is safe and I’m sure it’s effective for them.  But for me, on this purchase occasion, I needed “something extra.”

Exactly 3 stores down what did I stumble upon?  You guessed it, a wine shop: Ansley Wine Merchants.

Ansley Wine Merchant Atlanta

Image Credit: yelp.com

 

  • This store was not radically more appealing to the eye.  Stacks of wine and liquor everywhere, although it did have a unique organization structure with country flags designating each section of the store with the varietals organized under that country’s flag.
  • Point of sale everywhere!  Want facts and interesting tidbit?  You’ll find them.
  • Service!  And if you need a hand, the guys behind the counter are willing to lend it.  They will even throw the bottle in a gift bag.
  • And if you want to spend between $5 and $1k, you have your place.
  • And there was a Yelp promo offer if you bought 6 bottles.

Needless to say, I purchased my bottle from Ansley Merchants, NOT Publix.  Not just because Publix was “too cheap”…..I’m from the school of thought that fantastic bottles can be found in EVERY price point.  But unique, “interesting” finds were simply not present at Publix, at least in my eyes.  And I felt like I was buying a bottle of salad dressing vs. learning something about my purchase.

There is always a way to compete.  There are consumers who value things beyond price.  If there are enough of them, you can be fancy and call this group of buyers a “segment.”  Pick a segment that matters and over-deliver and you can compete with the 800lb gorillas. Even when they are 2 doors down…..

 

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The Importance of Customer Segmentation

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It’s been on the horizon for TN. liquor stores for many years, law changes that allow Grocery Stores to sell Wine.  I’ve detailed out the business drama in the Case study:  Local Liquor stores fighting the sea change.

I argued that 100% of the Liquor Store owner’s energy should NOT be fighting the inevitable, but for preparing for this reality (fight or flight).

“If I owned a Liquor store I would put ZERO energy in fighting this legislation. ZERO.  I would put 100% of my energy preparing for the inevitable day when I have a 75,000 square foot store selling the same category I’ve been insulated on.  And if I couldn’t build a winnable plan, I’d be preparing for an exit.”

So the million dollar question is:  “HOW?”

Well, it starts with your biggest risk when massive competition comes your way:  Customer migration.

Said another way, fewer visits from existing customers, and fewer “new customer drop-ins” as more distribution options compete for your customer visits.

In Short, nothing matters more than customers.

  • Customers are the conduit to revenue.  Revenue is the conduit to margin.  Margin is what pays the bills.  
  • Enough quality customers + a sound business model = profit.  Not always, but usually.
  • Quality customers are meaningful, loyal and are your lifeline.
  • Have indifferent customers and who knows how many will leave you.  But you WILL have some losses.  The question is, will your business be OK as a result?

The question that keeps coming through my head is:  Do the stores even know their level of risk?

First Principle:  All Customers are not created equal.  

The “80/20” rule applies to all facets of life, where a very small % of customers create a large % of revenue.  It is amazing how consistent this rule is, and consumer analytics almost always proves this to be true.  

If the Grocery industry’s frequent shopper card bought us clutter to our key chains, it DID re-enforce this truth in marketing as the data proved category by category.  Given that, here’s the implications for liquor store owners, and all those in the Marketing Biz…

Know thy customers

image credit:  ideawall.com

Customer Segmentation

  • Is the business model broken down all the way to the “customer level?”.
    • How many customers drive the total revenue?
    • How many trips per year per customer?
    • $’s spent per customer trip?
    • Trips per customer * $’s/trip = Annual total customer $ value
  • Are they segmenting customers from “high to low” (based on some measure of lifetime value, such as ANNUAL expenditures)?
  • Are they modeling what the future could look like when competitive landscape changes?
  • Does the new landscape affect all customer segments equally?
  • What does that likely scenario mean to the businesses bottom line?

At first blush, many marketers or store owners may think:  “How can I possibly get that data without expensive CRM systems?  Natural Reaction.  But if you don’t have expensive systems, you only need a couple variables to get close, which all businesses should have:

Steps For Modeling Your Customer Segmentation Value Grid[Continue Reading…]

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The 80/20 Rule: Timeless and Under-leveraged

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80/20 rule results & effortThe Pareto principle (also known as the 80–20 rule) states that, roughly 80% of the effects come from 20% of the causes.

I think of it as  “Cause & Effect” meets impact.

  • 20% of Customers drive 80% of your sales
  • 20% of your employees drive 80% of your productivty/output
  • 20% of your time drives 80% of your productivity

There are not many areas this law will NOT conform too.  It may be one third driving two thirds, but the relationship holds:  Small #’s drive the bulk of results.

The key behind this principle is understanding the highly productive 20% driving the majority of the benefit.  Find more of that.  Protect that group, nourish it, put your effort there.  Understand the remaining 80% and if possible minimize your effort against it.

Real World Application: CPG

80/20 can be demonstrated visually.  Take a typical category in your local grocery store, lets say Cereal.  Pareto’s law says that 80% of the category revenue will be driven by 20% of the items.  How do you visually demonstrate this?  Break out a Marketer’s right hand (EXCEL):

  1. Calculate the % share of each item.
  2. Rank them high to low
  3. Calculate the “cumulative” share of each additional item.  Example, if the #1 item represents 5% of category sales, #2 = 4%, the cumulative share of both of those items =9% of the category sales.  Add up the cumulative shares of all the items
  4. Graph the cumulative contribution of every item.
  5. Manage accordingly:  If your valuable, sell it.  If your vulnerable, work to change it, or understand why it shouldn’t matter (loyalty, uniqueness, etc)

Graphically, the results look like this, where the first 400 items (<20% of the total 1,300 items) drive nearly 90% of the category sales.

This law holds for nearly every category.  And nearly every time I’ve seen it in action, eyebrows raise.  It should be of no surprise, but think about it:  In this category, 900 items drive 5% of the sales, while 300 items drive 95%!

Said another way, how would you like to be part of the 900 items doing little for the Buyer’s contribution to  sales, while hundreds of competitors fight for this same space?  Power (the “Missed P” of Marketing) Matters.  Knowing it is step #1.

Note:  This type of analysis is so critical, the “competency” is a foundation for Career success in a Marketing CPG career.

paredo

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