Lis Calandrino

I teach a lot of entrepreneurial classes and one question that is always asked during the session is "Should I reduce my price?"

Of course you can do anything you want, but is it really worth it to lower your prices? There was an article in USA Today in August of 2009 talking about the consequences of lowering prices to bring in business. In the short term it will certainly bring in customers if they want to buy. Long term, you will have to ask yourself, are these the "right" customers?

If your customers are better customers what message are you giving them by lowering your prices? You’re saying our brand has changed; we’re not the store you thought we were, in fact, we’re not sure who we are!

Ray Noorda had a wonderful business in the company he founded: network software supplier Novell Inc., until he became obsessed with beating Microsoft Corporation. His battle was futile. He left Novell as it began a long downward slide.

According to Benson P. Shapiro, in his article Commodity Busting: Be a Price Maker, Not a Price Taker, in Strategy+Business Magazine, he states that smart competitors don’t try to beat their adversaries; they avoid direct competitors and instead maximize profits. The astute manager wants to establish a set of quasi "local monopolies," protected from competitive as well as customer pressure. This demands confidence, not bravado, astute analysis instead of raw aggression, and careful, empathetic focus on the other players in the marketplace.

Before you lower your prices you need to ask yourself, what for? I had an interesting conversation with a very large higher-end retailer who was experiencing a serious economic slowdown. I asked what he thought he might do and his remark was "If retail continues to be this way for the next year, I might have to close one of my underperforming stores." I asked how long had this been a problem, to which he remarked, for years, but when business was great we could carry the store. You probably know my suggestion: close it now! He thought that this was very negative thinking on my part: Why didn’t I think it would turn around? I stated if it couldn’t turn around in good times why would it turn around in bad times? Save the spending and put the money in your pocket. What did he do? He continued to drop prices, which gave salespeople an excuse for lower prices even more: "It’s not our problem they said." It also ate away at their self-confidence. What happened in one year? He closed the store.

Customers have distinct thoughts on stores that continue to change their prices, here are the results:

• 70% said that slashing prices means the brand was overpriced to begin with. If you can’t sell it at the original price then maybe that price was wrong or did the quality change? The more you shop TJ Maxx or Marshalls the more you begin to wonder if certain brands should ever be sold at full retail prices.
• 62% said that if a company does not slash, reduce or put a product on sale, that means that the brand is either extremely popular or already a good value. Brighton is one of those companies that has rarely if ever put merchandise on sale. Brighton just knows the stuff is unique and of good value.
• 60% said that if a company put one item in the store on sale, then they felt other items in the store would soon go on sale. Macy’s has a habit of doing this with their women’s clothing line; by the end of the season, it’s all on sale. If you’re not too fashion conscious, it’s smart to wait until the sales and buy for the next season.

If you engage in price wars to increase your market share by cutting prices, you run the risk of lowering profits and not being able to cover your overhead. The result: you’re out of business.

Other companies, which still have the goal of maximizing their profits, follow suit by also lowering their prices, then a chain reaction occurs. The result? Everyone suffers a loss in profit. As previous research has shown, price wars seem to occur because of the mistaken belief that lowering prices below competitors’ prices is a competitive strategy. How can it be a competitive strategy if you’re not making enough money to break even — forget making a profit. What other strategies can you use to react to a competitor’s lower prices?

• Rather than base your strategy on maximizing profit, a company can react by not changing its price at all. Instead, you can drastically increase your service level, or look for unique and more expensive merchandise and refuse to engage in the price competition. Each of these strategies can end the price wars and reduction of overall profit loss. Remember one of the signs of a business in trouble is their lowering prices.
• Don’t lower the prices in your better lines, instead look for a cheaper price point in the same line. This will not take away from your premier brand and allow your customers to stay true to the brand.
• You may have also noticed that Heinz ketchup and Hellman’s Mayonnaise have combated price increases by giving the customer less product.
• According to Unilever, "Recently, inflationary pressures have brought about by the increased costs of raw materials. Rather than raise our prices, we chose to slightly reduce the size of the 32 oz quart and 16 oz pint. This is the first time in over three years that we have had to increase costs to our consumers."
• If customer likes the product and the price remains the same, it’s easy to stay loyal. I don’t think I have ever finished a jar of ketchup or mayonnaise. Is it sneaky? Maybe. I’m still buying Hellman’s because I like the taste. Cutting the ounces wasn’t a secret.
  Remember if you’re not a price cutter, you are treading in unknown waters with unknown competitors who are better players. Players who are always cutting prices and known for “offering deals.” Those that make money at this game are masters at buying the right price points.” Tough competition.

Someone once said, I might go out of business if I don’t cut prices. The response: if you’re going out of business wouldn’t it be better to do it with money? 

I hate to complain about the airlines because it doesn’t make any sense. They have their rules and ideas about "how to run a railroad" and they're not like mine. But I know you’ll love this one.

Two weeks ago I missed my connection from Detroit to Albany by one minute. I was the last one to get off the commuter plane and had five minutes to make the last flight to Albany. I was only about 10 gates away and was waving at the gate agent while she was yelling, "You missed it." 

"But I’m only a minute late and you wait for other people," I cried. "Why not me?"

They actually thought that was humorous. I didn’t exactly think so! 

Ok, so there ended up being no planes anywhere in my neck of the woods and so I had to spend another night in Detroit.

So last week my plane sat on the runway in Albany for almost two hours causing a "slight" delay and another "slight delay" which caused me to miss my connection to East Lansing. The result was a stay over in Detroit and a bus trip on the Michigan Flyer the next morning so I could make my class in E. Lansing.

So now it's two weeks in a row, but if you travel a lot you suck it up and move on. But here’s where it starts to get a little sticky. On my return flight two days later, while waiting to take off from Detroit, the captain announces that he is "waiting" for a few people from another plane that has just arrived. He doesn’t want to leave them in Detroit because this is the last flight to Albany. I actually can’t believe he is saying this—and he goes on to say, "This is part of our customer service and we are happy to do it." Again he hopes we won’t mind. He is also happy to talk with any of us when we deplane. Wow, we are going to have a talk!

I decide to be the last one off the plane.

“How nice of you to wait," I smilingly say to the captain.” He agrees with me of course.  I ask him, “How do you make that decision?”

“I don’t make it, the tower decides,” he says.

“And what is the magic number?” Asks Lis.

“It changes with each situation," says the captain. "Why do you ask?"

“Because," says Lis, "I want to know why you left my butt at the airport with a minute to spare a couple weeks back.”

“It’s the luck of the draw," he replies. "Awful isn't it?"

Here are my thoughts for your business:

• If you’ve got rules, follow them for all customers — not just the nice ones or the ones that yell louder.
• Examine your policies, do they really make sense?
• Try not to laugh directly in your customer’s face; it’s not that funny.

Will I complain? Why bother…

But, will I take whatever measures I can to not fly this airline again? If I can help it, I won’t. "Luck of the draw" just doesn’t seem right does it?

Last month I appeared on Richard Naylor's TV show "The Money Factor" to talk about business strategy. I was asked ahead of time to provide what I considered to be the Top 10 Customer Service Tips that businesses could employ to survive a downturn. The following are my thoughts. What are yours?

1. Answer your phone. We’re all tired of voice mail and "press one".
2. Get personal. There are fewer customers to go around, take care of the ones you have. Find out what’s important to them and do it.
3. Return phone calls immediately. Everyone’s busy but as a customer, I don’t care about everyone else—only me.
4. Be upbeat but forget "have a nice day." We are all worn out with that expression, so change it to "I hope you get your shopping done" or "take some time out for yourself."
5. Throw in something extra; maybe it’s a great or a sincere "hello, how is your day going?" or a small gift. A cup of tea or coffee would be great.
6. Treat customers like friends, not customers. The world is more transparent, show your customers you care. Find out about their families, their children and their hobbies—that’s what friends do.
7. Go the extra mile—even if there’s no immediate profit. We remember when someone is nice to us. Letting a customer use the phone or the bathroom.
8. Listen to your customers.
9. Take care of perceived issues immediately. Since 96% of customers never complain and just go away mad, going the extra mile to show the customer that you really care will help tremendously.
10. Reward customers for being customers. Send them thank you notes, a holiday or birthday card or plan a holiday event and invite your past customers.

What are your tips for businesses in a touch economy?

If you're interested in watching my TV interview from "The Money Factor," click here. Feel free to subscribe to my YouTube channel as I'll be posting video soon!

Lately I’ve received many calls from panicked customers along the lines of what should I do with my business, I don’t think I can make it? This prompted me to reach back into my 30 year-old Rolodex to make some phone calls.

Thirty years ago I knew who to call. Yesterday I wasn’t so sure. Much to my surprise, the contacts hadn’t changed. Planned Furniture Promotions, an affiliate of Gene Rosenberg Associates, is very much in business. Since 1962 Gene Rosenberg Associates has been considered to be one of most professional and best known promotional specialists in the country. My contact this time was Burt Homonoff, Partner and Vice President of Operations. With so many furniture companies going out of business, the last ones that came to mind for me were Levitz and Wickes Furniture. From what I’ve read, Levitz, at the time of their closing, had 80 stores and had been in business for 100 years.

I asked Burt if we might talk about the furniture industry; it seems like they’re in trouble. Here's my paraphrasing and additional thoughts based on what Burt shared with me.

The consumer has been changing over the past twenty years. Most furniture retailers just missed it. It’s been a gradual change, taking a little chunk out of business yearly. Consumers are using their homes differently. The American dream, a Cadillac in the garage (now it’s a Lexus) and a new living room and bed room set. First it was a media room, a work out room or spa, a game room and of course the in home office for their computers. Consumers are playing Guitar Hero or Wie and not sitting on their sofas.

And the competition has intensified.

According to Furniture Today, furniture in the United States used to be a producer-driven industry. Now, it’s turned into a quasi-buyer-driven industry. Driven by a rise in innovative branding, retailing and marketing, new trends like "life-style branding” are creating whole new niches at the retail end. With innovations in retail, low shipping and import costs, even small retailers are entering the furniture business with new designs and variety.

"It’s all about change," says Burt, "and many furniture retailers missed it."

Many furniture stores still look like the furniture stores of yesterday. They display the same furniture that was in style 10 years ago with the same accessories. They just don’t seem to see the trends or they are "mature" retailers who still think the customer is their age. 

Younger customers, different priorities.

Furniture has taken a low priority on the customers' "have to have" list. Remember when furniture used to be sold only in furniture stores? Now everyone has some type of furniture — from Walmart to Target. In the summer, the grocery stores carry outdoor furniture.

I’ve noticed that brides used to register for furnIture and the other day I saw a story about a couple (in the New York Times) who wanted money for a start up business and were giving “the investors” shares in their new venture! What happened to the brides?
Couples used to ask for bedroom sets, something substantial so they could hand it down to their kids. Then couples started moving around for better jobs and different types of lifestyles; nobody wanted to lug a bedroom set across the country. The same applies to the big dining room sets, very few people entertain on that scale these days. People are looking for furniture that is more inexpensive and disposable.

I see many more “rent to own” furniture stores; I thought they were just for people who couldn’t afford to buy and then I found some of my friends renting furniture. Are they taking market share?

Since this isn’t Burt’s niche I went to check it out. The rent-to-own is a $6.3-billion dollar business. The RTO continues to improve its business, customer service and pricing becoming a viable consumer option in the American economy. The unique rent-to-own transaction sprang up in the 1960s in response to a growing consumer need for acquiring the use of household products without incurring debt or jeopardizing the family’s credit. Rent-to-own customers come from all walks of life, desiring consumer durable goods in their homes without the long-term financial obligations associated with credit sales.

How does IKEA figure in the mix? Consumers rave about the Swedish meatballs and I see that they were serving free breakfast on January 9th. I was in one of the Chicago stores — it was quite impressive.

IKEA is noted for their trendy styles and their great price points. They cater to the new lifestyle, KD (knocked down) furniture, easy styles and definitely disposable. In addition they offer everything including the dishes. A one stop shop. IKEA’S interior design teams create functional and trendy room settings which make the products easier to buy.

Customers want the looks but don’t want to pay the price. They also know if they look long enough they won’t have to pay the price. The average sale has gone from $1500.00 10 years ago to $800.00.

What happened to “Made in the USA?”

As furniture factories have moved to China, their suppliers and related businesses have followed, making the country an exceptionally efficient place to operate. It’s said that labor represents 30% of the cost of production in the United Sates and in China it’s less than 7%. Because product is so cheap, they can easily follow worldwide trends.

Consumers want Toyotas and Lexus's these days, not Chevys.

What should a furniture store do if they’re having trouble and seeing their market share slip away?

• If they’re going to survive and thrive they will have to change, and change quickly.
• Think of the new consumer trends, it’s doubtful that the trends will go backwards. Consumers don’t want to spend money and want disposable furniture. You can’t change the trends and live in "the old days."
• Move into other areas of home furnishings. Carry furniture that fits into consumer’s lifestyles, casual, trendier pieces.
• Consumers don’t want to wait, so quick delivery is even more important. Don’t overstock but have access to a local distributor who can deliver quickly.
  Sounds like another industry needing an overhaul.

Remember, keep on top of trends. Style is constantly changing — sometimes even changing back to what it used to be.