Mills on Marketing

Are we really persuaded when retailers price something at $19.95, rather than $20?

Yes we are!

University of Florida marketing professors Chris Janisewky and Dan Uly investigated the way the human brain thinks about value and shapes bidding.

Their research is reported in Scientific American Mind (April/May 2008). When people judge an opening price they create mental measuring sticks. If they see a $20 Kettle they wonder why it is worth $19 or $18. That is rounded numbers.

But why the starting point is $19.95 our mental measuring sticks change. When we think about what it is worth, we start thinking about nickels and dimes instead of dollars, so a fair price for a toaster might be envisioned as $19.75 or $19.50.

The psychologists also looked at five years of real estate sales in Alachua County, Florida comparing list prices and actual sales prices of homes. They discovered that sellers who listed their homes more precisely at say $495,000 as opposed to $500,000 - consistently got closer to their asking price.

In other words, buyers are less likely to negotiate a price when they encounter a precise opening price.

So, the lesson is, if you are in a buyers’ market you should start with an exact list price.

Popularity: 12% [?]

The late Peter Drucker told us “the purpose of business is to create and keep a customer.” When businesses forget this fundamental fact they soon fall into decline.

When Lou Gerstner took over IBM in the early 1990’s, Big Blue was in deep strife, about to report its biggest loss ever, $8.1 billion. Here is how Gerstner saw his future:

“In the spring of 1993, a big part of what I had to do was get the company refocused on the marketplace as the only valid measure of success. I started telling virtually every audience…that there was a customer running IBM and that we are going to rebuild the company from the customer back.”

Gerstner went on to pull off one of the greatest turnaround stories of modern-day business, turning an $8 billion-plus loss into a $5 billion gain in 5 years by focusing on the needs of critical crown-jewel customers.

Popularity: 14% [?]

John Robert’s Spa owned by service guru John R. Dijuluis III, an American chain of high-end salons and spas whose is policy is that a ‘smile is part of the uniform’.

When you train your staff to greet your customers, ask them to notice the colour of the customer’s eyes.

Scientists using MRI scan machines show the names associated with smiling faces activate the orbitofrontal cortex – an area of the brain involved in reward processing.

People remember smiling faces. It’s simple - we want to remember people who were kind to us, especially when we are likely to come across them again in the future.

Even mega retailer Wal-Mart understands this. Staff follow a “10 feet greet” rule. Every time a staff member comes within 10 feet of any other customer or coworker, you must smile. If you run a service firm, make smiling a ‘non-negotiable’ behaviour.

The Chinese proverb ‘Don’t open a show unless you like to smile’, has more than a ring of truth to it.

Popularity: 12% [?]

One of the things that I admire about Disney World is the way it transforms its low paid workforce into a cast of brand evangelists.

Walt Disney understood that the words we use frame the way we think and often behavior. Disney created his own language to support the Disney mission of delivering happiness through entertainment.

In Disney Speak:

• Rides or shows are always called ATTRACTIONS
• Employees are always CAST MEMBERS
• Customers are always called GUESTS
• Jobs are always called ROLES

On the surface, language can seem superficial or trite. But words create images that reinforce assumptions. Take the word GUEST. A disgruntled customer evoked a different image to an unhappy guest. Guests always deserve special treatment, while customers often evoke images of indifference.

If you want to create a service culture where staff stay in role or on-brand, start by changing the vocabulary you use to label staff, roles and customers. The right words really can mobilize your culture.

Popularity: 22% [?]

A 2007 report from the Economist, based on research of 311 executives on their companies engagement practices tells us the ‘winning differentiator is no longer the product or the price, but the level of engagement - the degree to which a company succeeds in creating an informative long-term relationship.”

The term “engagement” has been used to describe all manner of marketing, loyalty, satisfaction and retention practices. But engagement today is about taking a more strategic view of customer relationships. The bad news is, highly engaged customers are the exception, not the rule.

Of the respondents that were surveyed by the E.I.U. only 13% believe their customers are very committed to their product, while 44% believe their customers are only somewhat committed. If CEOs really believe this, then they need to move heaven and hell until they get the results they want.

Popularity: 16% [?]

Hot fashion retailer Zara has one plaudits for the way it taps into fashion trends and converts them into hot clothes that are affordable - amazingly fast.

A Zara design can go from concept to store within 30 days. Zara employs over 200 staff in its Spanish design and development team. The team churns out an amazing 1000 styles a month.

The mantra in Zara is react rather than predict. Zara’s designers don’t attempt to predict or share the market like most of their competitors. Zara reacts to what they in the night clubs, on the streets and on the catwalks and tests them in their shops. What sells is replaced quickly. The sale dogs are cut.

Its a magic formula. Customers love it. They get the latest fashions, fast and cheap.

Zara’s short lead times means it continues to deliver more fashionable clothes. Thats why customers return to the store - on average an amazing 17 times a year (most competitors average 3). The lower quantities mean the fashion items are often in short supply. Low surplus stock means Zara doesn’t have to regularly purge its stock with massive end of season sales - so margins remain high.

The huge range of styles gives the customer more choice and improves the odds of Zara getting it right. Because Zara customers know Zara is always updating its stock, Zara spends very little on advertising. Zara’s hot fashion creates massive word-of-mouth among it’s target customer base.

When Ortago Gaona, the founder of Inditex, the owners of Zara, is asked what Zara does, he replies “Zara provides freshly baked clothes.” For the staff this translates into: react rather than predict.

The Zara formula also suggests that before long we will find that a lot more fashion brands will have to own and run their own retail outlets. Zara’s “fast fashion” is built on getting daily feedback from its own stores and using it’s sales associates and store managers as “trendspotters.”

Popularity: 37% [?]

In the 1900’s all train passengers traveling from East Germany to West Berlin had to pass through Checkpoint Charlie.

At the border, an East German officer would check all passports and travel documents. As the officer checked each passengers papers he asked the same 3 questions:

1. Who are you?
2. Why are you here?
3. Where are you going?

These 3 fundamental questions were all the officer needed to ask to test the validity of the family’s travel plans.

When you are selling to customers you need to be able to answer three questions that your customers will ask of you:

1. What makes you different?
2. What makes your company different to other vendors?
3. What makes your company’s product or solution different to your competitors?

Before you ever sell to a customer you need to be able to answer these 3 questions with clarity and conviction.

Popularity: 18% [?]

I have worked with Toyota and Lexus for over 20 years.

Undoubtedly, I’m biased. My wife and I both drive a Lexus. Plus, I’ve been part of numerous Toyota and Lexus product launches, branding and sales plays.

Over the years, I’ve thought deeply about what separates Toyota from its competitors.

Building cars that are relentlessly reliable and offer exceptional value explains much of Toyota’s success. But you can only do that consistently if you have a culture or mindset, that welcomes customer feedback - especially when it’s a negative.

No other company I have ever worked for embraces and faces problems or challenges like Toyota.

When Toyota discovered the average age of a Toyota buyer is about forty-five, compared with about thirty-seven for Honda and thirty-two for Mitsubishi, they set about building a brand that would win the hearts of the next generation of consumers by launching a new brand called Scion in the U.S.A.

The median age for Scion buyers is thirty-five. More importantly, 76% of Scion buyers have never bought a Toyota before.

Compare this to GM who spent years trying to rescusitate Oldsmobile with slogans such as “This is not your father’s automobile” and “A New Generation of Olds.” The campaigns didn’t work. So in 2000, GM killed off Oldsmobile.

Popularity: 93% [?]

I’ve had lots of fun recently visiting ZARA fashion stores in Barcelona and Paris.

Customers flock to their stores, literally grabbing the latest fashions which seemingly come into their stores in a never-ending stream.

Zara is not just cool for its modestly priced, affordable clothes. What makes Zara really cool is its ultra-competitive business model which allows it to design and deliver product to its stores within 15 days.

Competitors typically take 9 months.

Zara’s designers start by attending the fashion shows looking for cool designs. They then produce small batches of imitation cool product which is shipped to stores to test for demand.

Product runs for popular lines then are scaled up. Zara avoids the big mistakes its competitors regularly make. Plus it doesn’t have to spend much on advertising because its customers are always coming back looking for the latest cool wear.

Compare that to competitors, where you wait around for the end of season sales.

No wonder Zara is so cool. Or should I say hot?

If you haven’t already, make sure you check out my other blog, The Naked Negotiator - The Secrets of Big Deals, Big Sales and Big Pitches - laid bare.

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Oren Harari, the New York Times best-selling author of The Leadership Secrets of Colin Powell, has authored a highly readable sequel, Break from the Pack: How to compete in a copy-cat economy.

Harari uses the EMBER model to test important marketing decisions.

1. (E) Does it make us extraordinary?
2. (M) Does it matter to customers?
3. (B) Does is break new ground?
4. (E) Does it encourage evolvement?
5. (R) Is it real?

The EMBER questions provide insightful and useful answers. Use it. And read Harari’s book.

Popularity: 11% [?]