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As a marketer whose job is to create preference and profitability for my clients, I don’t like discounting. In fact, I hate it. I call it the D-word. It’s distracting. It’s demeaning. It’s destructive and depressing. And yet I see companies do it all the time.
These days discounting is more prevalent than ever. Now into the second year of our economic tsunami, we are getting used to headlines bemoaning declining sales and shrinking profits across virtually every sector of the economy. The current issue of the Harvard Business Review even coined the term Post-Recession Consumer, whose “new thriftiness and desire for simplicity” will change business for a generation. Just this month Yahoo! (YHOO) introduced a new Web site called Yahoo Deals, offering coupons, information about limited-time promotions, and even a cheap gas finder. The company reports that searches for the term “printable coupons” are up 50% this year because, as Greg Hintz, head of Yahoo Shopping, puts it in a recent Brandweek piece, “Frugality is the new ‘cool.’ ”
Many companies are getting caught up in the frenzy and slashing prices. Even marketers who should know better—those who have made big bets on discounting in the past and lost—have not been immune. Both McDonald’s (MCD) and Burger King (BK) recently fought public skirmishes with their franchisees over the price point of their low-end burgers. Their corporate offices want to drive traffic, but franchisees complain that it does them no good to sell any product at a loss. And Macy’s (M), the nation’s dominant department store chain, lowered its price on a popular line of men’s slacks in an effort to generate sales. While the decision resulted in “tremendous sell-through” according to CEO Terry Lundgren, it also required “low price points and no margins,” an article in The Wall Street Journal quoted him as saying.
Discounting destroys brand equity, hamstrings investment in innovation, and zaps profitability for companies and their stakeholders. Which raises an interesting question: Can discounting ever be an acceptable strategy for a business?
If there’s one thing I’ve learned in more than two decades as a consultant, it’s never say never. There may be times and places where a discount can make sense to achieve a limited, well-defined objective. That said, discounting should be rarely used and carefully managed. Let me suggest three rules of thumb that should be kept in mind if (when) you begin flirting with the discount beast.
First: Discount briefly. Discounting is like a drug. Employed for a limited time to treat a specific condition, discounting can have its place. But like a drug, it’s addictive. Companies that get hooked on it do little more than drive their value proposition down, sometimes past the point of no return.
This is one reason why department stores have been in decline over the past two decades, launching Red Tag sales as soon as their Red Apple sales are over. They discounted so often that they trained customers not to shop if there wasn’t a sale going on. (My firm even produced a campaign for a retail client that spoofed how department stores would look for just about any reason to discount, such as the “Life’s Not Fair” and “President Polk Day” sales.)
Second: Discount credibly. Handled carefully, discounting can be used to achieve specific business objectives without compromising your brand’s overall value perception. The key is to make the rationale behind the discount credible (and obvious) to consumers, so they don’t perceive it as an act of desperation.
For instance, Apple’s (AAPL) student discount on laptops doesn’t damage the brand because it’s based on a rational corporate reason (get young computer users hooked on its products) and a credible consumer need (students are poor). The company also offers 10% off a new iPod when customers recycle their old one, which not only encourages upgrading but makes Apple look like a responsible corporate citizen. Both of these tactics enable Apple to maintain (perhaps even increase) brand equity while making its products more accessible.
Third: Discount creatively. Smart companies understand that price is just one element of the value equation, and find ways to “discount without discounting” by focusing on other elements of the marketing mix. Luxury leather goods maker Coach (COH) did just that by adjusting its merchandise inventory so that half of its handbags are regularly priced between $200 and $300 (compared to its historical average price of $325). While this will have a negative impact on the long-term equity of the Coach brand name, it’s less damaging than hanging a “30% off” tag from the handle of every purse.
Or consider video game retailer GameStop (GME), which is pushing the sales of more used games (that have a naturally lower price point) while times are tough. That will keep customers in the habit of coming to its stores to find what they want. GameStop understands that when the economy comes back, so will the sales of new games. Rather than hurting its future pricing power by discounting new merchandise, the company has found another way to satisfy its customers in the short term.
And then there’s Quizno’s, which has taken some licks from franchisees for discounting in the past. Facing not only a down economy but a powerful competitor making a compelling offer (Subway’s Five for $5), Quizno’s developed new sandwiches that it can profitably sell for four bucks or less. According to CEO Rick Schaden in an e-mail interview with me, the “Toasty Bullet” and “Toasty Torpedo” were designed “to appeal to consumers’ wallets and tastes while still protecting franchise owners’ margins” under a program called the Flex Plan. A major component of the Flex Plan is to provide, “a constant pipeline of new product innovation,” including, if necessary, additional lower-priced menu items.
The bottom line: In your customers’ eyes, your product is either worth regular price or it’s not. In tough times like these that may be a more difficult case to make, but if you’re not winning the value equation in their eyes you should focus on finding a way to meet their needs without reflexively taking a percentage off the top. If you do choose to incorporate discounting into your strategy, it must appear sensible and smart, not irrational or a result of panic.
People understand that prices are a market mechanism. If you start playing the discount card too much, you’re sending a signal that you don’t believe your product or service is worth it. And if you don’t believe it, who will?
There are probably a million websites on the web that tout solutions for marketing and promoting your business online. When you are getting started it can be very difficult to know who the true professionals are and it can take months to figure out where the high quality information is located.
Below are five great sites I recently found on Small Biz Survival that will help you figure out the small biz social media that often leaves us frustrated.
These sites offer an understandable point of view and explanation on all types of small biz social media that you could ever need information on.
My brother-in-law “Bob” (not his real name, because I promised not to identify him) has always been a tough top manager who brooks no fools. For more than 30 years, he’s worked for a successful, family-owned electronics distribution company, rising from the sales ranks to become president and general manager. Bob had fired dozens upon dozens of people over the years, and he had no compunction when it came to pulling the trigger. Recently, Bob’s company was getting ready to pull the trigger, unfortunately, again.
But this time, Bob laid himself off — not because he wanted to or was quite ready to retire, but because he wanted to save the positions of two younger managers whose names were on the layoff rolls.
Over the years, I’ve heard Bob complain about “coddled and demanding” Gen X and Gen Y workers. But he’d trained and mentored these younger managers and had grown fond of them. He told me, “I was looking at two good, loyal, hardworking people with young families who are about to be cut through no fault of their own. One of them had a wife who was eight months pregnant with her first child. The other one had two kids and an unemployed husband. They would be facing a horrific job market.”
By contrast, Bob had saved a decent, if not handsome, retirement nest-egg; as a very conservative investor (he only bought into municipal bonds and risk-averse mutual funds), he hadn’t lost all that much in the Wall Street meltdown. After 30 years at one firm, the idea of change was daunting, but also inviting. He tapped his network, landed a part-time consulting job that was perfect for him, and told the owner his plan. Take the younger employees’ names off the layoff list. Put mine on it.
Many older workers can’t afford to retire, and the recession is keeping them in their jobs. But others don’t want to retire simply because they enjoy working and wouldn’t know what to do with themselves if they didn’t go to the office every day. Unfortunately, their reluctance to move on is having a devastating effect on younger workers who either can’t break into the job market, or who, lacking seniority, end up on the “last in, first out” layoff list.
That seems to make Bob something of a hero for what he did. The question is, are there more Bobs out there? Does his move signal a bigger change, or is he a rare, heartwarming exception to the rule?
Should more older workers think about passing the baton, if they can afford to?
The accounting and consulting firm Deloitte puts out a semi-annual magazine called the Deloitte Review. The most recent issue is quite interesting and covers topics ranging from open source innovation to Chinese manufacturing to the growth of solar energy.
But the article that jumped out at me is The Great Transformation, which covers 8 U.S. economic trends that could not last forever. Each trend is described briefly and illustrated with excellent charts. The 8 trends are:
The article argues that recession and related economic turmoil is creating a fundamental realignment between the U.S. government and the private sector. Key quote:
“Going forward, the U.S. government is going to have a much larger role with the issues of governance, green economics, energy and transparency taking center stage.”
The article also forecasts increased government spending, taxes and regulation.
We’re starting work on an forecast of what the post-recession economy looks like for small businesses. And these economic shifts all will have an impact on the future of small business.
One woman who frequently flew on Southwest, was constantly disappointed with every aspect of the company’s operation. In fact, she became known as the “Pen Pal” because after every flight she wrote in with a complaint.
She didn’t like the fact that the company didn’t assign seats; she didn’t like the absence of a first-class section; she didn’t like not having a meal in flight; she didn’t like Southwest’s boarding procedure; she didn’t like the flight attendants’ sporty uniforms and the casual atmosphere.
Her last letter, reciting a litany of complaints, momentarily stumped Southwest’s customer relations people. They bumped it up to Herb’s [Kelleher, CEO of Southwest] desk, with a note: ‘This one’s yours.’
In sixty seconds, Kelleher wrote back and said, ‘Dear Mrs. Crabapple, We will miss you. Love, Herb.’”
The phrase “The customer is always right” was originally coined by Harry Gordon Selfridge, the founder of Selfridge’s department store in London in 1909, and is typically used by businesses to:
Fortunately more and more businesses are abandoning this maxim – ironically because it leads to bad customer service.
Here are the top five reasons why “The customer is always right” is wrong.
Gordon Bethune is a brash Texan (as is Herb Kelleher, coincidentally) who is best known for turning Continental Airlines around “From Worst to First,” a story told in his book of the same title from 1998. He wanted to make sure that both customers and employees liked the way Continental treated them, so he made it very clear that the maxim “the customer is always right” didn’t hold sway at Continental.
In conflicts between employees and unruly customers he would consistently side with his people. Here’s how he puts it:
When we run into customers that we can’t reel back in, our loyalty is with our employees. They have to put up with this stuff every day. Just because you buy a ticket does not give you the right to abuse our employees . . .
We run more than 3 million people through our books every month. One or two of those people are going to be unreasonable, demanding jerks. When it’s a choice between supporting your employees, who work with you every day and make your product what it is, or some irate jerk who demands a free ticket to Paris because you ran out of peanuts, whose side are you going to be on?
You can’t treat your employees like serfs. You have to value them . . . If they think that you won’t support them when a customer is out of line, even the smallest problem can cause resentment.
So Bethune trusts his people over unreasonable customers. What I like about this attitude is that it balances employees and customers, where the “always right” maxim squarely favors the customer – which is not a good idea, because, as Bethune says, it causes resentment among employees.
Of course there are plenty of examples of bad employees giving lousy customer service. But trying to solve this by declaring the customer “always right” is counter-productive.
Using the slogan “The customer is always right” abusive customers can demand just about anything – they’re right by definition, aren’t they? This makes the employees’ job that much harder, when trying to rein them in.
Also, it means that abusive people get better treatment and conditions than nice people. That always seemed wrong to me, and it makes much more sense to be nice to the nice customers to keep them coming back.
Most businesses think that “the more customers the better”. But some customers are quite simply bad for business.
Danish IT service provider ServiceGruppen proudly tell this story:
One of our service technicians arrived at a customer’s site for a maintenance task, and to his great shock was treated very rudely by the customer.
When he’d finished the task and returned to the office, he told management about his experience. They promptly cancelled the customer’s contract.
Just like Kelleher dismissed the irate lady who kept complaining (but somehow also kept flying on Southwest), ServiceGruppen fired a bad customer. Note that it was not even a matter of a financial calculation – not a question of whether either company would make or lose money on that customer in the long run. It was a simple matter of respect and dignity and of treating their employees right.
Rosenbluth International, a corporate travel agency, took it even further. CEO Hal Rosenbluth wrote an excellent book about their approach called Put The Customer Second – Put your people first and watch’em kick butt.
Rosenbluth argues that when you put the employees first, they put the customers first. Put employees first, and they will be happy at work. Employees who are happy at work give better customer service because:
On the other hand, when the company and management consistently side with customers instead of with employees, it sends a clear message that:
When this attitude prevails, employees stop caring about service. At that point, real good service is almost impossible – the best customers can hope for is fake good service. You know the kind I mean: corteous on the surface only.
Herb Kelleher agrees, as this passage From Nuts! the excellent book about Southwest Airlines shows:
Herb Kelleher […] makes it clear that his employees come first — even if it means dismissing customers. But aren’t customers always right? “No, they are not,” Kelleher snaps. “And I think that’s one of the biggest betrayals of employees a boss can possibly commit. The customer is sometimes wrong. We don’t carry those sorts of customers. We write to them and say, ‘Fly somebody else. Don’t abuse our people.’”
If you still think that the customer is always right, read this story from Bethune’s book “From Worst to First”:
A Continental flight attendant once was offended by a passenger’s child wearing a hat with Nazi and KKK emblems on it. It was pretty offensive stuff, so the attendant went to the kid’s father and asked him to put away the hat. “No,” the guy said. “My kid can wear what he wants, and I don’t care who likes it.”
The flight attendant went into the cockpit and got the first officer, who explained to the passenger the FAA regulation that makes it a crime to interfere with the duties of a crew member. The hat was causing other passengers and the crew discomfort, and that interfered with the flight attendant’s duties. The guy better put away the hat.
He did, but he didn’t like it. He wrote many nasty letters. We made every effort to explain our policy and the federal air regulations, but he wasn’t hearing it. He even showed up in our executive suite to discuss the matter with me. I let him sit out there. I didn’t want to see him and I didn’t want to listen to him. He bought a ticket on our airplane, and that means we’ll take him where he wants to go. But if he’s going to be rude and offensive, he’s welcome to fly another airline.
The fact is that some customers are just plain wrong, that businesses are better of without them, and that managers siding with unreasonable customers over employees is a very bad idea, that results in worse customer service.
So put your people first. And watch them put the customers first.
FY 08-09 highlights
FY 08-09 highlights
NASSCOM today announced the findings of its annual survey on the performance of the Indian IT-BPO services sector for FY08-09 and outlook for FY09-10. According to the findings, the sector reached USD 58.8 billion in FY08-09 up from USD 52 billion in FY07-08. Export revenues for the Indian IT-BPO industry recorded growth of 16.3 percent and clocked revenues of USD 46.3 billion in FY08-09 up from USD 40.4 billion in FY07-08. The domestic segment grew by 21% to register revenues of INR 570 billion in FY08-09 from INR 470 billion in FY07-08.
Within the export segment, IT services have grown by 14.7% to clock revenues of USD 26.5 billion; BPO exports are up by 16.5% registering revenues of USD 12.7 billion. Engineering services and product exports clocked revenues of USD 7.1 billion, growing at 11% in FY 08 -09.
Mr. Pramod Bhasin, Chairman, NASSCOM said, “While growth was synonymous with industry performance in the past decade, resilience and efficiency was the thrust in the year 2008-09. In the face of a severe economic downturn in key markets, the industry was able to deliver a high growth of over 16 percent and retain its position as a strategic global sourcing destination. The industry also enhanced its thrust on building a globalised value chain, with a 35 percent increase in global delivery centers since 2007”.
Mr. Som Mittal, President, NASSCOM said, “A significant highlight of the year was the industry thrust to re-engineer itself to partner with its clients in testing times. Increase in fixed price contract, shift from onsite to offshore and end-to-end transformational deals helped the industry to get over 90 percent repeat business from its clients. At the same time, the thrust on diversification saw emerging verticals and geographies grow almost three times than the core markets”.
The domestic market witnessed enhanced focus in FY 08-09, with large transformational deals in telecom and e-governance and contract value of outsourcing deals growing by 32%. Domestic BPO got a special boost with over 40 percent growth in this period.
FY 09-10 trends/estimates
FY 09-10 trends/estimates
The last few weeks have witnessed some stabilization in the demand environment with improvements in GDP growth rates, stock indices upswing that could indicate early signs of recovery. However, worldwide IT spending growth is expected to decline in 2009 and 2010. The environment continues to be challenging with global demand ecosystem being weak; absence of large deals; vendor consolidation and pricing pressures.
“The industry in its first quarter results has demonstrated sustained focus with increased operating margins and enhanced utilization. The NASSCOM survey estimates that the IT-BPO export revenues will grow by ~ 4-7% to reach ~ USD 48-50 billion in FY09-10.” said Mr. Bhasin. IT-BPO Domestic revenues are expected to grow by 15-18%, to reach INR 650-670 billion.
Global sourcing is today an essential component for organizational competitiveness. The industry in India will continue to invest in offering transformational solutions and enhance its value proposition in sync with client requirements.
As a part of the survey, NASSCOM also released the annual rankings for the following categories, for FY08-09
A friend was telling me about a Lean project he is currently working on. Implementing Kanban, Lean Six Sigma training, set up reduction and quality initiatives, among other things, this person is currently consumed in Lean. My friend said that he thinks it’s time for a break because he is even dreaming about Kanban cards! My advice to him was to get use to it. Once you’re into Lean Six Sigma, you are always thinking Lean. We then came up with our Top 10 list of: You know you’re into Lean Six Sigma when…
Let’s say you’re at home or at work and your cellphone rings. Someone at the other end says, “Hello, my name is Sunder. I work for XYZ cellular company. We have launched a new scheme on post-paid connections. What connection are you using right now?”
What thought will cross your mind? Probably something like: “Uh-oh, another pesky salesperson. I’m about to be sold something again. How fast can I get off the phone?” In other words, it’s basically over at ‘Hello’ and you end up rejecting the person at the other end.
Welcome to the world of cold calling. If you’ve ever felt a sense of awkwardness while picking up the phone and calling someone you don’t know, you’ll understand just how challenging making a cold call can be. Whether you are calling to confirm an appointment, asking for an interview slot or trying to sell something, mastering the art of such telephonic conversations will definitely make life easier for you.
What is a cold call?
If you are thinking ‘What in the world is a cold call’, calling absolute strangers to talk about your business and persuading them to act would be it. While the image of a telecaller selling credit cards, mobile plans etc is what comes to the mind, immediately, the knowledge of how to handle a cold call comes in handy in all walks of life.
Why is it challenging?
“Cold calling terrifies me — the phone feels like a dumbbell every time I have to make one,” says Binshri K, a call centre executive from Delhi [Images]. The person you are calling may react with hostility or choose to hang up. You face a firestorm of rejection for every spark of interest you ignite. It’s important to remember that we live in an age of information overload. The amount of information that an average 17th century person would have accumulated in his/ her entire life is what is served to you in your daily newspaper. Time is at a premium and people are stressed out. Given all this, nobody wants to attend to that unexpected call on a busy day.
Free yourself of cold calling jitters
You can turn cold calling into a fruitful and positive experience by changing your mindset and making your calls sizzle. With a little planning and preparation you can influence the decisions of people or persuade them to buy what you are selling. Here are some tips at the heart of effective cold calling:
Probably with “Sure, what is it?” or “What do you need?” — that’s how most people would respond to a question like that. It’s very natural and instinctive. When your prospect replies, you don’t respond with a sales pitch about what you have to offer. Instead, you go right into talking about the key focus area.
Cold calling is not about counting the number of people you reach; rather, it’s about reaching the people who count. That’s the missing link in the entire process. So go out there and sizzle!