Don’t Lose on Loss Leaders

By Laura Iles - Sr. Consultant, Integrated Insight

As I watch the ads this season, I’m reminded that loss leader strategies are a favorite holiday pricing tactic of the various establishments competing for our dollars. When used appropriately, discounting below cost can be a useful strategy for pulling repeat customers in the door, driving incremental sales, and establishing new clients. But this strategy is not appropriate for every business, nor for every occasion. Below, we’ll look at some of the critical factors to consider in determining whether this particular pricing tactic will achieve your goals.

Attracting the Right Customers

The first question is whether a loss leader strategy will attract the kind of customers that will remain with the company long term. While steep discounts can entice new customers with a low-risk chance to sample offerings, there is always the chance of drawing individuals who cannot afford to pay full price for the products / services once the offer is concluded, and have no intention of making incremental purchases on that first visit.

This is where market research becomes critical. Understanding existing customers and their motivations will enable the firm to decide whether a discount message of this level will be attractive. Price is not the only loyalty driver – Nielsen research demonstrates that globally, 59% of customers would be most enticed to switch brands, service providers, or retailers for an attribute other than price. Clearly, a dramatic savings message is not the only way to attract customers.

Maintaining the Customer Experience

Prior to execution, consider whether resources exist to manage the volume increases. Depending on how valuable the offer is perceived to be, the deal may end up attracting more customers than the firm is prepared to handle. A sudden spike in online traffic can crash servers and attendance increases may overwhelm stores. Consider whether a more modest savings message would be effective, while helping to preserve the customer experience.

Limitations

Specific limits around the campaign will help to prevent a devaluation of what current customers have already purchased. Loss leaders for specific times (Black Friday) or specific subsets of customers (local residents, particular email lists, etc.) will help to prevent a general weakening of your brand image, as well as shielding the firm from widespread losses if the strategy does not produce incremental sales. As time passes, it is useful to periodically review limitations for any ongoing loss leaders. There is always the hazard of training your customers to wait for discounts if such messages are provided too frequently.

Imaging

Think long term – does this tactic support the firm’s overall image? The danger with any loss leader strategy is the risk of creating a “discount” image. Many businesses utilize this approach successfully, just make sure it’s the most appropriate one for the company. Fencing the offers (e.g. limited time only, a subset of individuals only) will help to mitigate the discount appearance and retain value for the firm.

Create an Exit Strategy

As with any new strategic plan, be willing to utilize an exit strategy if the loss leader tactic is not creating the anticipated level of success. Develop guidelines around targets and time frames before implementation and establish metrics to use in evaluating success. You might cross-track elasticities to measure the impact a loss leader has on sales of additional items, as well as establish a process for tracking new customer retention. Discount messaging is an easy way to drive immediate sales, but determining whether it creates long-term profitability requires tracking the results.

Using a loss leader to drive penetration can be powerful, but it’s not the only pricing tactic available. Make sure it truly aligns with the company’s strategy and the customer’s needs before deciding which course to pursue. 

Inspiration in the Office

By Candy Parks - Director, Integrated Insight

There are people much smarter than me that have built a body of research on the psychology of office design and the impact on retention and productivity.  If you doubt me, follow this link:  http://www.facilitiesnet.com/designconstruction/article/Workplace-Design-Can-Help-Attract-Retain-Generation-Y-Employees--13859

All I know is that I like colors, and colors make me happy and boost my energy.  We read about this in medicine all the time – people focus their thoughts and their attitude and those positive thoughts have healing powers.  I believe office supplies have productivity powers!

Most women love to spend hours shopping for shoes at Nordstrom.  I, on the other hand, get my retail therapy in Office Depot.  Maybe because in one of my first jobs, I had to get office supplies from someone we’ll call Helga.  If I checked her resume, I think I’d find that Helga managed inventory for the Nazi forces.

If you needed pens, she informed you that black ball points were all you needed.  And yellow post-it notes fit the bill – the other colors were simply frivolous.  And according to Helga, the only binders fit for use were 2” and black!  Helga also thought colored file folders were from the devil.

Poor Helga would CROAK if she could see my office today.  Luckily, I now work in an environment where my leaders say, ‘Get what you need to do your job.’  Sooooooo, I have 3 ring binders in polka dots, paisleys, and bright stripes.  I put my most challenging projects in my favorite binders, and psychologically, that perks me up when I have to reach for that binder.  I have post it notes in every size and color and I use them all.  I have flair pens in 12 colors, and I have REAL pencils – not mechanical pencils.  Of course, my pencils are from Vera Bradley and are beautiful, but I use them happily and admire them as I do so.  I have note-taking books in bright yellow, pink, and lime green.  And my bookshelves are lined with colorful cloth baskets to store all my fun supplies.  When a project is done, I transfer it to a boring folder – not manila, but a boring solid color and put it away.  But while something is active, it LOOKS active on my desk or on my shelf.  And I feel active and energized while I work on it. 

Of course, there is a time and a place for everything.  No, I’m not going to take my bright polka dot binder to a corporate meeting – I’ll transfer to basic black – but I WILL take my purple flair pen.  If you’re a leader, please don’t underestimate the simple pleasures of office supplies and their potential impact on employee satisfaction and productivity.  It’s so much cheaper than redesigning your office and buying new furniture!

Pricing 101: Taking a Page from Pawn Stars

By Kirsten Snyder - Director, Integrated Insight

If you haven’t checked out the show Pawn Stars on the History channel, then you are really missing out.  The show follows about 3 or 4 items that people bring into the Gold and Silver Pawn shop in Las Vegas.  The items range from old military weapons to pop culture collectibles.  Think of it as Antique Roadshow, only at a pawn shop.  Besides the history you learn from the experts on the show, it teaches important lessons in pricing and maximizing profit.

Understand the price customers are willing to pay.

The pawn shop understands that they need to buy an item at the right price in order to be able to mark it up to make a profit.  In order to buy at the right price, understanding how much an end customer is willing to pay is critical.  Not knowing the price the market will bear runs the risk of overpaying and being forced to sell at a loss.  It can also lead to a slower than expected sales pace.

Understand the size of the market interested in the item.

Another important factor to consider when buying a product is how quickly the item will sell, otherwise known as carrying costs.  The pawn shop can estimate this by understanding how many people are interested in, or able to afford a certain item.  For example, if they buy a first edition Mark Twain Novel worth $10,000, management first has to project how many Mark Twain collectors are in the market and willing to spend $10,000.  Carrying costs are important to consider given money tied up in inventory isn’t available for purchase of new items.

The best channel may not be your own.

The pawn shop may buy an item that’s too good to pass up, but if they need a specific audience to sell to, then the pawn shop may not be the best place for the sale to take place.  Some items may sell quickest and fetch the highest price through a different channel.  For example, the pawn shop purchased a car driven by Steve McQueen in his last movie, The Hunter.  Because this item has a very specific audience, they considered how much profit could be made if they sold it through an auction, in spite of the auction fees.  The pawn shop knew they would have the best audience willing to pay the most money through this channel, as opposed to their own store.

The moral of the story, “Maximize profits by understanding your consumer.  Offer the right product, to the right customer, through the right channel, at the right time and price”.

Black Friday Frenzy or Cyber Monday Mania?

Shoppers are increasingly trading early morning ‘door-busting’ deals for the comfort of online shopping at home

By Sue O’Shea – Director, Integrated Insight

Are you a Black Friday Soldier, a Cyber Monday Surfer, or both?  If all the indicators are accurate, holiday shoppers seem, more and more, to prefer shopping for deals from the comfort of home rather than braving the early hours and frenzy of Black Friday. 

The internet has certainly transformed the shopping experience, and the long held post-Thanksgiving tradition of arriving at 4 a.m. for “door-busting” deals might be its next casualty.  Nielsen recently conducted research that indicated 85 percent of consumers plan on skipping the stores on Black Friday this year. Instead, nearly half of consumers (46%) stated that they will shop online on Cyber Monday, compared with 30 percent in 2012, a significant 16-point increase.  The research also stated that the percent of respondents planning to shop in physical stores this Black Friday is down 4 points from 2012. This is part of a four-year downward trend, where consumers report a declining interest in shopping the Friday after Thanksgiving.

ComScore reported that Americans spent $4.3 billion online from Thanksgiving through Cyber Monday in 2012, with double-digit increases on every day compared with 2011. On Black Friday itself, online sales rose 28% while in-store sales dropped 1.8%. Clearly, consumers increasingly favor online deals over those in stores, especially since they can find the same items online at the same price and with free shipping.  Internet shopping also gives the consumer an easier way to comparison shop without having to drive all over town.

Despite the comfort and ease of internet shopping, there is a certain segment of shopper who thrives on the thrill of the chase and competitive shopping on Black Friday.  I bet some are camping out in front of Best Buy already, so the Black Friday tradition seems safe for now. These intrepid souls may be decreasing in numbers but they do make for a good story on a slow news day.

More power to them, but I will be at home clicking away with a cup of Christmas cheer!

Christmas Creep

It's not your imagination - Christmas season started early this year

By Sue O’Shea - Director, Integrated Insight

  

The local easy listening station in Los Angeles (KOST 103.5) started playing Christmas tunes 24 hours a day on November 15, almost 2 weeks before Thanksgiving!   Last year, the station started the holiday music programming on Thanksgiving Day.  According to the Consumerist this early start can have a negative emotional impact on consumers, in part, by taking the specialness out of the holiday. 

But while this kind of “Christmas Creep” may make people grumpy, the station’s Christmas music programming has proven successful. Last year the holiday ratings boost for KOST was 10.2% audience share, crushing competitors, including No. 2 KIIS-FM which came in at 5.5. Despite any negative repercussions, this year the Christmas hype is being rolled out earlier than ever – and there are strategic reasons why according to Matt Brownell in his Daily Finance retail article:

• No Presidential Election. This year, retailers had free rein to take over the airwaves in the fall, and they took advantage.

• A Late Black Friday.  This means a shortened “holiday season” and retailers are not going to wait until Nov. 29^th to roll out the promotional efforts.  

• Early Hanukkah.  The first night of the Hanukkah falls on the evening before Thanksgiving.

• More Focus on Low-Income Shoppers. Walmart officially kicked off the holiday season back in August, when it announced its holiday layaway program. Meanwhile, Kmart aired the first official holiday commercial of the season - an ad for its layaway program.  The nature of layaway means retailers have to begin talking about the program early.

• And finally, Because It Works.  Even though some may react poorly, the displays and music still get people spending, and at higher rates than they would if stores opted to wait. According to the National Retail Federation, 2012 saw an immensely profitable holiday season as stores experienced an overall sales increase of 3.5 percent, or $579.5 billion more in sales. The NRF predicts that this year’s holiday sales will increase even more. 

Maybe the Christmas music on the radio is helping to motivate early and additional spending, but I have vowed not to pay any attention to the Holidays until the day after Thanksgiving.

Continuous Improvement Through Customer Feedback

By Laura Iles - Sr. Consultant, Integrated Insight

Customer feedback is one of the most valuable tools an organization has – be it compliments or complaints, this window into the client’s mind is invaluable. But, to use it effectively, a company’s structure and systems need to be designed to support continuous improvement based on this customer feedback. It’s a multi-step process, replete with opportunities fail in proper execution.

Collecting the feedback

AT&T does a superb job of collecting customer feedback through text messages. After each interaction with an AT&T representative, I receive a series of text messages asking me to rate various portions of the transaction, and then submit any comments I may have. Other firms operate through phone calls or emails – the appropriate medium depends on your customers.

Conversely, my doctor’s office recently missed a perfect opportunity to solicit my feedback. When the office called to ask me to schedule an appointment, I informed them that I was switching providers. “Ok. We’ll make a note on your chart.”

This was an overlooked opportunity for their office to gather valuable information about what is driving clients away. It’s likely this employee was never trained in collecting feedback.  Her responsibilities for the most part lie elsewhere and her priority was to execute on those other, more pressing matters. Training every employee who interacts with customers to solicit feedback when they see the potential to gather valuable information should be part of the program.

Startups are often excellent at this, proactively soliciting feedback from those who test the first few generations of product releases. These customers feel valued and, even though the product isn’t perfect, they are engaged and become invested in making it better. Those who send feedback, however negative, have the potential to become your most ardent supporters and ambassadors if you engage with them.

Prioritization

In the process of collecting this information, there will occasionally be those high-alert items that require immediate assistance. They are different for each firm, but we all have certain situations that have the potential to damage our brand or cost us our best customers.

Do your employees soliciting feedback know what these items are? Have they been trained to recognize a priority situation and escalate it appropriately?

I recently watched a customer complaint on Twitter spiral out of control – in front of the customer’s 2.5M followers – because the employee on the social media front lines didn’t recognize an urgent customer-care situation.

The result? The firm publicly lost a loyalty-customer and the customer in turn received an invitation from a competitor, complete with the promise of better service.  In this very public day and age, training your service members to recognize and respond appropriately to priority situations is an absolutely critical step in the feedback process.

Classification and Execution

At specific intervals, it’s important to stop collecting data and turn your focus to execution. Post data-collection classification and action is a particularly challenging piece of the process to manage.

Often, firms don’t have systems in place to support thoughtful use of the insights that have been compiled. Further, not every piece of feedback requires action. Knowing how to separate the wheat from the chaff and execute on the most important items is crucial.

Ensure there are specific procedures for review in place, as well as working relationships with impacted teams. Create an appropriate forum for discussion and solicit buy-in from those who will be required to execute on the actionable items. Don’t allow your firm to be caught in the trap of collecting data while never acting on it.

Follow Up (As Applicable)  

This last step will need to be taken on a case-by-case basis. Certainly the majority of the feedback your firm receives may not require any personalized follow up. But when utilized, it can absolutely cement customer loyalty.

A brief follow-up to ensure the concern was addressed, or to say thank you for positive feedback, does wonders for reassuring your customers that you care about their experience. And if their concern hasn’t been resolved, giving them a quick option to connect to a live person for further help can allay much of their frustration. General follow ups, such as blog posts, are a great way to let consumers know that your team is working on addressing their feedback.

Companies aren’t required to be perfect. We’re all human; we’ve made our fair share of mistakes and we’ve worked with systems that don’t always perform perfectly. Most of your customers understand, and are willing to make allowances – so long as they feel their critical concerns are heard. Listen to your customers, let them know you take their feedback seriously, and you’ll create a fanatically loyal following.

United Airlines - Friendly Skies?

A (not so) Flyer Friendly Experience

By Candy Parks - Director, Integrated Insight

I love George Gershwin’s Rhapsody In Blue.  I bet he’s bluer than blue that this tune is the hallmark theme probably best recognized as the tag associated with United Airlines.  Way back when - they wanted us to fly the friendly skies, and now they are trying with great fervor to convince us they are flyer-friendly.  I think they need to keep trying.

What I experienced on my recent travel was definitely not a friendly experience.  I had to travel from Orlando to Washington to Munich to Bari, Italy in one fell swoop – two legs on United and one leg on Lufthansa –both members of the Star Alliance. My first clue that this would not be United’s finest moment came when I checked in at Orlando.  I was told by the United agent that he was unable to print my Lufthansa boarding pass and I would need to check in for that flight in Munich.  When I looked confused, he explained ‘that’s not United.’  Why tout the alliance to the public if it’s not easier or better for the customer?

Given that I knew I was facing a daunting travel day, I had happily paid the upgrade for extra legroom on my United flights.  Imagine my dismay when I found out I was in boarding group FIVE - the very last group called to board. Even after paying for premium seating, I had to watch four groups board ahead of me, loaded with carry-on luggage.  I’m betting the majority of those folks didn’t pay for early boarding – yet another ‘friendly’ service provided by United – for a fee.  Spoiled by JetBlue, I expected the hundred and thirty something dollar premium I paid would include priority boarding as well.

My flight to Bari was scheduled with Star Alliance partner Lufthansa and there was a reasonable two hour layover.  I first tried using the kiosk to print my remaining boarding pass, but was told it couldn’t find my travel arrangements and I would need to go to the counter.  Unfortunately, the ticket agent could not find my reservation either, commenting, ‘Oh, this was through United.  That explains it.’  He punched a bunch of numbers, and then some more and finally called a supervisor.  It was explained that because the tickets originated with United, they weren’t recognized in the Lufthansa system and they had to CALL United to sort it out.  Not check online, CALL.  Perhaps because it was 2:00 am in the U.S. and the call center was closed, or maybe the agents were simply busy with other calls, but Lufthansa was never able to reach United by phone or online.  By contrast, while working on a ship in Greece,  my boss got a call from her father in Pennsylvania.  In Greece.  On a ship.  In an elevator.  But United can’t be reached by phone by a Star Alliance partner to work out a paid ticket issue with a flight they booked and which was about to board? Why was there a need for a call?  Why was the itinerary number issued by United not recognized in the Lufthansa system if they are part of a Star Alliance?  And if they know their numbers differ, why don’t they have a fast and efficient way to handle this – especially in situations involving international travel on a connecting flight they scheduled?  

Lufthansa simply ‘fixed the situation’ and issued me a boarding pass so I could make it through security in time to make my flight, but I had to hussle.  My Lufthansa experience was ‘flyer friendly."  Lufthansa is a STAR in my book.  For all I know, Lufthansa was at fault, but by that point I was more than happy to blame United.  In my mind, I was United’s customer – they booked the flight.  The fact that United, in my experience, dropped the ball not once but twice was all the evidence I needed that they were falling far short of flyer-friendly.  I can only laugh when I see their commercials.  Flyer-friendly?  Heck, even when you pay a bunch of fees, it’s a crap shoot as to whether or not you will get good service.  So, I say ‘flyer-friendly my foot.’