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FIRST CUT IS THE DEEPEST
Listed under: Comments
Published: Tuesday, April 12, 2011
How to devalue the industry in one easy lesson: Discount. That’s it, told you it was easy!
Okay, so I’m being a touch flippant, but I do believe that our tendency to price match, price beat and generally smash the hell out of the price of the products we sell does us no favours.
Of course, there will be cries of “We have to discount to compete with the JLPs and Internet retailers!”, and I understand that. The commercial pressures to sell are huge and understandably the way to get a sale is often to reduce the price. After all, it’s better to have some money in the till at a lower margin than no money. Again, I understand that. But what is it doing to our value proposition? What is it doing to the perception of our industry? What thoughts is it putting in the mind of our customer? What effect does it have on our staff?
The car industry is a great example of why discounting is a bad thing. Motor cars are expensive, even so called cheap cars are expensive items to purchase. But the car has been commoditised to such an extent in the mind of the consumer that ownership is considered a birth-right. The result is an inbuilt refusal to even think of paying the list price. We all try and negotiate a discount when buying a car; I’m as guilty as the next person. Look at the image the motor trade has – bet the first thing that springs to mind when you think “motor trade” is an Arthur Daley type character. That perception is its own doing, if it hadn’t been so keen to move metal by slashing prices and ‘doing deals’, it might not have that image. And perception is reality.
Hi-Fi, not Lo-Fi
A Hi-Fi system used to be a required purchase – house, car, TV and Hi-Fi – that was the order in which people bought things when it was a separates system or nothing for home music listening. Now that is the not the case, I doubt whether a Hi-Fi (as we understand the term) is even in the top 50 of the average consumer’s purchase wish list. What we sell now are luxury goods. No one needs a Hi-Fi system, you can quite easily listen to music on a portable CD/radio or via an MP3-player, or even not bother. We have become and are continuing to become even more of a niche business. That’s not a bad thing, in fact quite the opposite, it means we can really concentrate on being very, very good at what we do. If we accept that we are a niche and therefore by definition are appealing to a small, enthusiast crowd, we can better understand what we have to do to effectively promote ourselves to the targets.
Let’s not forget that some of our products fit well and truly in to the aspirational class. They can have stratospheric prices that put them out of the reach of most mortals. That adds a sense of mystique to high end Hi-Fi and a desire for those at the entry level to one day acquire for themselves the bells and whistles model. The high end is a niche within a niche.
Like any luxury goods category, the price tag tells a story well beyond the actual pound notes. It positions the product where the manufacturer wants it to be positioned in the mind of the consumer. Watches, perfumes, clothes, jewellery, fine furniture, all niche products with a determined place in the market. But, and here’s where they differ from Hi-Fi, they’re not discounted. One wouldn’t dream of waking into DeBeers to buy a 5-carat diamond ring and negotiating on price, nor would one visit Valentino and ask for a deal on a dress. So why do we so readily cut the price of the luxury goods we sell?
The consumer seems to have bundled Hi-Fi into the same commodotised segment as TVs. As we all know, that’s a market that is very definitely price-led, one only has to look at the leading TV retailers to see how blatantly they are competing on price. Currys’ website states “We won’t be beaten on price. We’ll not only match competitors, we’ll beat them by 10% of the difference.” Comet promotes its “Price Match Promise” and new kids on the block, Best Buy are at it as well “...we’ll refund you 10% of the difference between our price and the lower price.”
Another way
That’s a very good reason not to be selling TVs as an independent! But Hi-Fi should be different, being a niche product and generally an expensive one at that. But for some reason the consumer expects a deal on their Hi-Fi purchases and we seem keen to accommodate their wishes. Maybe back in the days of Hi-Fi being number four on the wish-list and there being a very large number of Hi-Fi shops, competitive pricing was a perfectly valid strategy, but now that it’s a niche product I really would question whether this is the best policy.
If we concentrate on what makes us independent specialists operating in a close-knit niche market we might be able to position our value proposition where it deserves to be. Professional, well trained and knowledgable staff, advising clients who are looking to spend thousands of pounds should feel proud of what they do. If the norm is to give away margin by discounting our wares, then there is less of a reason for staff to feel as proud as they should. And that could spell a dangerous downward spiral. The worth of what we do is devalued in financial and emotive terms.
BADA works hard to ensure its members are well trained and proficient in the skills needed to be successful as retailers of luxury products. Its member benefits provide real bottom line savings through such offers as preferential credit card rates or retail credit schemes. Being seen to be the expert, selling at higher prices, retaining margin and saving at the bottom end through BADA’s benefits. A radical proposition, or one you think might be worth exploring? Shouldn’t we collectively put our industry on the pedestal it deserves to sit on?
http://www.bada.co.uk
Okay, so I’m being a touch flippant, but I do believe that our tendency to price match, price beat and generally smash the hell out of the price of the products we sell does us no favours.
Of course, there will be cries of “We have to discount to compete with the JLPs and Internet retailers!”, and I understand that. The commercial pressures to sell are huge and understandably the way to get a sale is often to reduce the price. After all, it’s better to have some money in the till at a lower margin than no money. Again, I understand that. But what is it doing to our value proposition? What is it doing to the perception of our industry? What thoughts is it putting in the mind of our customer? What effect does it have on our staff?
The car industry is a great example of why discounting is a bad thing. Motor cars are expensive, even so called cheap cars are expensive items to purchase. But the car has been commoditised to such an extent in the mind of the consumer that ownership is considered a birth-right. The result is an inbuilt refusal to even think of paying the list price. We all try and negotiate a discount when buying a car; I’m as guilty as the next person. Look at the image the motor trade has – bet the first thing that springs to mind when you think “motor trade” is an Arthur Daley type character. That perception is its own doing, if it hadn’t been so keen to move metal by slashing prices and ‘doing deals’, it might not have that image. And perception is reality.
Hi-Fi, not Lo-Fi
A Hi-Fi system used to be a required purchase – house, car, TV and Hi-Fi – that was the order in which people bought things when it was a separates system or nothing for home music listening. Now that is the not the case, I doubt whether a Hi-Fi (as we understand the term) is even in the top 50 of the average consumer’s purchase wish list. What we sell now are luxury goods. No one needs a Hi-Fi system, you can quite easily listen to music on a portable CD/radio or via an MP3-player, or even not bother. We have become and are continuing to become even more of a niche business. That’s not a bad thing, in fact quite the opposite, it means we can really concentrate on being very, very good at what we do. If we accept that we are a niche and therefore by definition are appealing to a small, enthusiast crowd, we can better understand what we have to do to effectively promote ourselves to the targets.
Let’s not forget that some of our products fit well and truly in to the aspirational class. They can have stratospheric prices that put them out of the reach of most mortals. That adds a sense of mystique to high end Hi-Fi and a desire for those at the entry level to one day acquire for themselves the bells and whistles model. The high end is a niche within a niche.
Like any luxury goods category, the price tag tells a story well beyond the actual pound notes. It positions the product where the manufacturer wants it to be positioned in the mind of the consumer. Watches, perfumes, clothes, jewellery, fine furniture, all niche products with a determined place in the market. But, and here’s where they differ from Hi-Fi, they’re not discounted. One wouldn’t dream of waking into DeBeers to buy a 5-carat diamond ring and negotiating on price, nor would one visit Valentino and ask for a deal on a dress. So why do we so readily cut the price of the luxury goods we sell?
The consumer seems to have bundled Hi-Fi into the same commodotised segment as TVs. As we all know, that’s a market that is very definitely price-led, one only has to look at the leading TV retailers to see how blatantly they are competing on price. Currys’ website states “We won’t be beaten on price. We’ll not only match competitors, we’ll beat them by 10% of the difference.” Comet promotes its “Price Match Promise” and new kids on the block, Best Buy are at it as well “...we’ll refund you 10% of the difference between our price and the lower price.”
Another way
That’s a very good reason not to be selling TVs as an independent! But Hi-Fi should be different, being a niche product and generally an expensive one at that. But for some reason the consumer expects a deal on their Hi-Fi purchases and we seem keen to accommodate their wishes. Maybe back in the days of Hi-Fi being number four on the wish-list and there being a very large number of Hi-Fi shops, competitive pricing was a perfectly valid strategy, but now that it’s a niche product I really would question whether this is the best policy.
If we concentrate on what makes us independent specialists operating in a close-knit niche market we might be able to position our value proposition where it deserves to be. Professional, well trained and knowledgable staff, advising clients who are looking to spend thousands of pounds should feel proud of what they do. If the norm is to give away margin by discounting our wares, then there is less of a reason for staff to feel as proud as they should. And that could spell a dangerous downward spiral. The worth of what we do is devalued in financial and emotive terms.
BADA works hard to ensure its members are well trained and proficient in the skills needed to be successful as retailers of luxury products. Its member benefits provide real bottom line savings through such offers as preferential credit card rates or retail credit schemes. Being seen to be the expert, selling at higher prices, retaining margin and saving at the bottom end through BADA’s benefits. A radical proposition, or one you think might be worth exploring? Shouldn’t we collectively put our industry on the pedestal it deserves to sit on?
http://www.bada.co.uk
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