Guident Newsletter – May 2017 – Issue 13

Gary Vaughan

Founding Member

920.427.5077

gary@guidentbusiness.com
P.O. Box 1174
Appleton, WI 54912

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Guident Newsletter – May 2017 – Issue 13

Lower prices are not always the answer!

One of my first “official” jobs I held, not counting the paper route that I had for years, was a clerk at a local grocery store.   One of my first memories of working in the local store was when the owner, Mr. Prellwitz, came to me with a roll of scotch tape and several rolls of new pennies.  He told me to tape a penny, with Lincoln’s head facing up, on each of the loaves of bread which were on several racks lined up against the wall.  So I did exactly what Mr. Prellwitz asked of me but even as a sixteen-year-old high school kid I had to wonder why I was doing this.

When I was done, and Mr. Prellwitz came to inspect my work, I asked him; “Why did you have me to do this?”  He said the other grocery store in town was running a promotion and giving bread away to everyone who shopped in their store that day and he was going to “do him one better” and pay his customers a penny to take his bread!  He said it with an aggressive tone and as I remember was rather proud of the idea.  Still, I couldn’t figure out why he would, first of all, give something away for free and, second of all, pay someone to take it away.

Looking back at this example it seems counter-intuitive that a business would do something like this.  But businesses sell on price every day, and when you sell on price someone or another business can always sell it cheaper, even to the point of paying customers to take it away as Mr. Prellwitz did.  If you cannot sell on price then how do you compete in an aggressive market?   Ask yourself, “What differentiates your business from the competition?”  It cannot be price, as that is too easily replicated.  It has to be something more real!  One answer has to do with psychographics.    What do I mean?  Think of the retailer Abercrombie & Fitch, known as A&F.

When my son was living at home he needed a new pair of jeans.  I gave him $50 and told him to go buy himself a new pair.  I waited patiently for several weeks but no new jeans and no $50.  One day he came home with new A&F jeans.  I asked him why it took him this long to buy the jeans.  He responded, “Dad, I had to save the $100 extra I needed to buy the jeans”.  Why did he pay $150 for a pair of jeans from A&F rather than saving himself $100 and buy a $50 pair elsewhere?  If you think about it, my son paid $50 for the jeans and $100 for the “feeling” of having A&F on his hip.  Those feelings are self-esteem, self-confidence, acceptance, status, success, quality, and the feeling of being liberal.  All of these are psychographic feelings and the stores that sell $50 jeans cannot compete for the same customers in the same way A&F does.  Price is not why their customers buy A&F jeans and it is hard to compete against them, even when your price is one-third of Abercrombie & Fitch.

If we think about it, most of our important buying decisions are decided using psychographics rather than price.  Price is not a differentiator; it is a feature of the product.  Psychographics, the way your products make your customers feel, is a benefit to your customers and we [customers] buy benefits!  Don’t get caught up in a pricing war, discover the psychographic reasons your customers buy from you and promote those reasons for greater growth and profitability.

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