Ah, the good
old 80-20 Rule… The saying “Rules were meant to be broken,” certainly applies
here. It’s one of those things that can seem like a positive or a negative
depending how you look at it. Similar to the, “Is the glass half empty or half
full?” question, your view of The 80-20 Rule is all about perspective and
making sure yours is aligned with the goals of your business.
Perhaps it’s
frustrating that 80 percent of your efforts account for only 20 percent of your
bottom line. But, it’s also pretty cool that just 20 percent of your customers
and products produce 80 percent of your profits.
It’s all about balance. And, as you find that equilibrium, you need to know when to reconsider The 80-20 Rule:
1.When More Selection is Required
There are times when one size does not fit all. You may provide the best
gosh darn spicy mustard the world has ever tasted, but sometimes a spicy
mustard isn’t the right mustard choice. There are circumstances when a classic
yellow mustard is preferable. Or maybe there’s a recipe that calls for a Dijon
mustard…
The point being: There are complexities that require consideration and adjustment on your end. That might manifest in a variance in investment strategies, production process, or product offering. Small tweaks to your 20 percent can result in a major boost in profit.
2.When The Present Does Not Reflect The Future
While a company’s best product and most loyal customers will consistently
account for a higher percentage of sales and profits, there are instances when
those factors are not reliable in the long run. Sales may drop as necessity
decreases and/or newer products/services become available. Competition is
always a factor and, during a time when technology constantly and rapidly
changes, your current best seller may not always be in high demand.
If you only focus on what’s doing well now, you’re bound to experience adversity in the future. If you rely to heavily on one thing, you inhibit potential growth. There is a simple need to develop and test new products to advance and survive.
3.When Expansion Creates Opportunity
Opportunities to expand your market will arise and the investment may not
be a part of your current 80 percent. These instances are worth serious
consideration—especially when the investment is minor. You may open up the door
to a broader 20 percent. For example, babies’ diapers are still the major
market segment, but adult diapers are the fastest growing segment. Expanding
your offering (this may include accessories, convenience items, or new market
segments) can draw in a wider customer base and that is never a bad thing.
One last
thing to consider: Diversity Requires Variation
Many markets
rely on analysis, which is based around the assumption of a bell curve where
the bulk of a population is around a center number and then distributed evenly
around that number. For example, the average U.S. adult male is about 5 foot 9
inches and 75% are between 5 feet 4 inches and 6 feet. However, if you start
segmenting by age, race, ethnicity, and country of origin the distribution
becomes much more complex. The average Danish man is almost 6 feet tall while
the average male from India is 5 feet 5 inches. In both cases using an average
of 5 foot 9 inches would miss much of the population.
Therefore,
it is beneficial to dissect your target consumer and consider multiple
offerings based on the possible variations that exist within that group.
In the end, The 80-20 Rule is still a reliable
tool in most cases, especially when trying to eliminate excess product or hone
in on top buyers. However, as always, exceptions to rules always seem to be
where the fun happens—the chance to maximize growth as you reassess opportunities,
trends, and market segmentation.
We’d love to hear about your
experience improving business performance by adding or reducing offerings.
Have questions? Call (at 914-632-6977) or email us for a FREE analysis and discussion regarding your offerings. We’d love to help you design a personalized solution.
A customized approach that caters to each of his clients’ specific needs is what sets Dr. Bert Shlensky apart. With a PhD from the Sloan School of Management at M.I.T., he focuses on implementing individualized strategies that have helped countless businesses increase sales and profit. He knows what works and has the experience and expertise to help you take the steps necessary to achieve your business goals. Visit StartupConnection.net today!
Looking for a one-word answer? If only! As you might have
guessed: It all depends. When considering price
integration, it’s important to remember that products and services must
meet minimal standards based on each specific circumstance. Simultaneously, risks
need to be taken as you strive for an exceptional customer experience. As you
develop your own strategy for price integration, consider the following questions:
What are the differences between a good quality
meal at a reasonable price vs. an expensive gourmet meal with special ambiance?
When it comes to gas, for how much of a savings
and to what distance are you willing to go out of your way to purchase cheaper
gas rather than utilizing your local station?
How much do you buy on impulse vs. shopping for
specific needs and taking time to search/compare prices before purchasing?
How important are image, brand, and experience
in your purchase decisions?
Do you prefer being unique or do you tend to
buy the same old thing? (i.e. Do you stick with what you know—say, hamburgers or
pizza—as opposed to trying new things?)
Provided the quality meets acceptable standards,
do you value quantity or quality?
These questions illustrate how varying factors take
precedence in different situations. Therefore, it’s essential to have a
comprehensive grasp on what it is you’re offering while also fully
understanding what your consumer views as important.
Before we move on, let’s define some key terms:
Value is
the perception of the utility relative to the cost.
Price is
the amount of money per unit or total that a consumer spends.
Quality of an
item refers to the actual craftsmanship or durability of the item or service.
Quantity, of
course, is how many of an item you get for the price.
Cost is
not exactly the same as price. Cost can also refer to the amount of effort
involved to obtain the product/service or the “opportunity cost” of missing out
on some other deal or experience by buying your product.
Here are a few key things to consider when it comes to
price integration:
Don’t try to be all things to all people—you
will probably fail at most of them. In some places, for example, customers view
the most important aspects of ordering a cup of coffee to be speed, quality,
and freshness. In other places, customers value the conversation that comes
with the service.
Product definitions keep changing. Airlines add new fees, restaurants bundle meal offerings, and
warrantees get updated in both price and characteristics. One of the most
critical aspects of pricing, often considered from more of a cost perspective,
is the product or service offering itself.
What is your
competition doing and what do your customers expect? For example,
warehouse clubs thrive by selling multiple units at lower prices per unit while
other industries (think candy bars and airfare) raise prices by creating the
ever-shrinking product/offering. Another factor to consider is shipping fees—free
shipping is virtually expected with most online purchases.
Logistics, sourcing,
and distribution efficiencies are critical factors in your marketing efforts.
They may be used to reduce costs for you and lower prices for your
customers. For example, sharing resources like Amazon, Uber, Air B&B,
and Grub hub can eliminate complexity and create efficiencies . Similarly,
shipping times, delivery methods, using direct shipping, etc., can affect consumer
perceptions and satisfaction.
Ultimately,
the CONSUMER determines the effectiveness of your offerings and whether or not your
offering has the characteristics they’re seeking.
Discussing price
integration can often feel a little like asking the age-old question, “What
came first: the chicken or the egg?” However, when factored in together, value,
price, quantity, and quality will determine what the weakest link is in any price
integration strategy. Each aspect deserves singular attention at specific
times, in various circumstances. But try to avoid exclusive focus on any single
element for too long—it may be devastating to your business. Knowing your
strengths is great, but not recognizing your weaknesses can ruin you. In order
to succeed, it’s crucial to identify what you do best and how you can effectively
make your product/service stand out from the rest.
Interested in a FREE business
consultation? Email or call and we’ll set up a time to discuss the strengths
and weaknesses of your price integration strategy.
With a PhD from the Sloan School of Management at M.I.T., Dr. Bert Shlensky prides himself on his customized approach to help each client address their specific business needs. He’s mentored a few thousand clients at Score and his own practice, grew Sure Fit products from $50 million dollars to $150 million in, was President of WestPoint Pepperell’s Apparel Fabrics Business, and headed the $400 million Culet Shirt Group. He knows how to take a business to the next level and can help you lead your company to greater profitability and success. Visit StartupConnection.net today!
Pricing products or services used to be simple and straightforward. Production and distribution techniques have changed dramatically and become more efficient. This has resulted in great value and pricing opportunities for huge retailers like Costco and Amazon. Online store price changes occur instantaneously, with immediate visibility and accessibility to consumers. There is more diversity in consumer pricing behavior today. The high-end consumer who buys $1,000 shoes in better department stores visits merchants like T.J. Maxx and Amazon to shop for unbranded commodities at a 20-40% discount. Here are some effective pricing strategy ideas to consider for even small businesses:
Analyze
bundling and unbundling.
To coin a phrase, “Do
you sell it your way or our way?” Bundling — if done
correctly — can both improve a product offering and satisfy the
customer, such as selling complete meals or LEGO sets. Bundling can also
be a way to increase profit by adding elements such as high margin warranties
to low margin items like electronics. Bundling can also enhance sales and value,
such as offering extra services in places like fitness centers or nail salons.
Unbundling has also
become popular. Spirit Airlines offers no-frills fares and charges for every
service to maintain perceived low prices. Generic brands represent another
form of unbundling by charging lower prices in exchange for lesser branding.
Pricing
psychology can also dramatically affect your image.
After you have worked long and hard to develop a rational and effective pricing strategy consumer can react strongly to psychological presentations. These can include practices such as: pricing at “$9.95” (instead of $10.00), eliminating the actual dollar sign, unmonitored purchase limits, offering some items for free, selling two for $9.95, or changing colors and font sizes.
Varying Prices
can increase volume and Increase Profits.
One of the most
successful efforts by sports teams and airlines is variable pricing. The
simplest thing is they have ranges in seat prices by location, game or time. The
biggest change is in varying prices by time, seasonality, or holiday, to
develop revenue in off peak periods. While these examples can utilize
sophisticated and expensive computer models, the most noted model is very
simple. Specifically, the early bird special in Florida has been around as long
as I can remember.
“Free” is not
a dirty word
The
concept of “Freemium” is more than a business model. It’s also a pricing
strategy. Offer a free product or service, then offer ‘pay-to-upgrade’
features, and you have a Freemium strategy. Remember that companies like
Google and Facebook were built on free offerings for entry, followed by a host
of upgrades and “for pay” services. Ancillary aspects of the Freemium
strategy include samples, blogs, demonstrations, contributions to charities,
etc. — these can all create awareness and build long term volume at little or
no initial cost. An older variation is to basically “give away razors and
printers” to sell the “blades and ink.”
Consumers
Love Promotions
Contrary
to some popular opinion, “promotion” is not a dirty word and the use of
promotions is not synonymous with diluting the value of your brand. You have
many opportunities to find new ways to increase volume today, including pop up
shops, selling through Amazon or Wal-Mart marketplace, seasonal programs, and
bundling.
Manage your
Product Mix
Essential
to the process of effective pricing is to understand the entirety of your
product mix. Getting people into the store with loss leaders is a proven
strategy. Seasonal retailers use promotions like “back-to-school” or national
holidays to drive traffic to the store (or website), where customers will load
up on the non-sale items. Most important have the items customers want in stock
and avoid items or products that don’t sell like odd colors, sizes or
contents
Consider Service
and Quality After the Sale
Many customers will opt to stay with a company in large
part because of the quality their service after the sale. Some other factors that can affect price decisions are quality,
availability, selection, return polices, and guarantees. When you have a small
business, you have the flexibility to look your customer in the eye and take
that extra step to make sure your customer is happy. A key example is that restaurants
and retail stores can suffer major declines if customers have to wait too long.
Use Efficiencies
of Logistics, Sourcing and Distribution
Another aspect of effective pricing strategy that can provide major competitive advantages has to do with logistics, sourcing and distribution efficiencies. These may be used to reduce costs for you and prices for your customers. For example, Amazon is able to employ such efficiencies to operate on a 15-20 percent margin while traditional retailers have to work on 40-50 percent margins. Similarly, shipping times, delivery methods, using direct shipping, etc., can affect pricing and profits
Final Words
Entrepreneurs who recognize that traditional pricing models no longer apply in today’s world of business will be better able to price their goods and services appropriately in this “Brave New World.” Effective pricing strategies vary widely depending upon the factors we have discussed. The most important suggestion from this blog is to consider alternative pricing tactics and consider the entire pricing package. You must aggressively manage and innovate your entire pricing package rather than simply reacting to short-term changes in the market or competitive pressures.
I’d love to hear your examples of how managing pricing has enlarged your perspective without harming your brand. You can find me at Bshlensky@startupconnection.net or 914-632-6977
Dr. Bert Shlensky earned a PhD from the Sloan School of Management at M.I.T., mentored a few thousand clients at Score and his own practice, grew sure Fit products from $ 50 million dollars to 150 million in sales including $ 60 million of direct internet sales, was President of WestPoint Pepperell’s apparel fabrics business and headed the $400 million Culet shirt group. In short, he knows what works and can help you lead your company to greater profitability and success. StartupConnection.net provides small business owners real solutions to real problems. Contact us today!
Operations is finally getting its rightful place in small business strategy. Automation, technology, customer needs, and the sharing economy are becoming vital components of the branding and marketing process. In order to achieve marketing success through operations, here are some examples:
In sports, analytics can be used to improve the individual impact of player skills. Defensive shifts in baseball, the three-point play in basketball, and increased passing in football are fundamental changes that have been accelerated by analytics.
When selling on the internet first started, delivery and security were thought to be major barriers. Today, customer service and delivery in 1-2 days are generally standard. In addition, the internet has proven that eliminating stages of the sales process (like those used in brick and mortar stores) can dramatically reduce costs and prices.
Creativity, differentiation, and advertising have been the focus of traditional marketing and branding programs. However, issues like value, service, quality, and culture are producing better results. Compare the focus of many brands in department stores, versus Amazon and other leading online sites. I argue that online retailers succeed partly because of the lack of technological skills among many traditional marketing professionals.
Here are some ways to improve marketing success through operations:
1. Digital Branding and the Internet – If you research anything about business today, it’s obvious that Apple, Google, and Amazon are three of the most important sales and communication vehicles. Nearly everyone uses their phone and/or laptop to research and buy products and services. However, the digital efforts in many companies are still buried in departments like accounting or marketing. I argue that digital activities and marketing need a special place in organizations and should be a major part of marketing programs. For example, digital activities need to be an integral part of efforts like emails, websites, sales, marketing, social media, logistics, and customer service (and should be treated that way.)
2. Excellence – There is an ongoing debate about pursuing excellence versus change just for the sake of change. This topic is affected by several issues and we need to understand how problems can require different solutions. Businesses are subject to radical change, so they need to build mechanisms into their processes. While we will face more uncertainty and instability, we need to focus on changing and simplifying processes to reduce the risks. Strategies like pivoting, developing and testing/measuring/adapting need to be built into our organizations.
3. Service – Service, image, and culture are frequently the biggest (and often least expensive) ways for small companies to develop a brand and differentiate themselves. Some suggestions:
Focus on your target market, segment, and your ideal customer.
Be polite, listen, and then act based on what you have learned.
Become a trusted resource to your prospects by providing information that will help them make a good choice.
Build an email list and send informative mailings on a regular basis.
Keep in touch with potential and existing customers.
4. Company Culture – Creating and maintaining a positive company culture is a critical component in achieving excellence and establishing a great brand. A great strategy without a supportive culture will undoubtedly fail. I’ve seen it happen too many times.
Open systems are becoming a critical aspect of great cultures and they often reject bureaucracy, authority, and hierarchy. Open systems encourage participation, diversity, new rules, and to some extent, chaos.
There is no better example of this than the Golden State Warriors, who just won their third NBA title in four years. Much of the attention is given to their super stars, but if you look behind that, you see how the entire organization (including the training staff, coaching staff, medical staff) are all united to create excellence and a unified culture.
5. Prioritizing with the 80-20 Rule – Prioritizing can produce dramatic results. In particular, focusing on strengths and eliminating weaknesses has dual benefits. For example, I have a client who has the best product in the industry, but charges a little more money. She has achieved success by moderating some prices, but mostly in developing messages that explain her quality difference.
In the modern business realm, it has been proven time and time again that 80% of business revenues are generated by just 20% of our customers. Yet we all continue to waste time, money, and inventory dollars on customers that bring in a lower return. This tendency also frequently adds confusion and complexity.
By focusing on the products that you know your customers want, you’re making them feel much more confident (especially when you’re selling online.) Instead of finding new ways to market products that simply aren’t selling, you may be better off to shift over to what is selling. If you give people what they’re searching for, they’ll buy. If you don’t, they won’t. It’s that simple.
In summary, operations, and logistics should be viewed as a critical opportunity to improve sales, profit and competitive positioning. While there are some technical aspects to this, it is the thought process and integration of the key components that will lead to success.
Dr. Bert Shlensky, president of Startup Connection ( www.startupconection.net ) has an MBA and PhD from the Sloan School of Management at M.I.T. He served as the President of WestPoint Pepperell’s apparel fabrics business and President and CEO of Sure Fit Products. Having provided counseling to over 2,000 clients, he now focuses on working with select start-up and small businesses.
SEO is frequently touted as an effective marketing tool for small business. I receive 3-5 e-mails per week from companies that provide SEO, promising things like first page placement, with inexpensive and quick results. SEO can be highly effective, especially within a comprehensive program. Is SEO overrated for small businesses? I think these claims should at least be reviewed.
SEO is frequently marketed as a silver bullet. However, it is only a piece in the puzzle of a total marketing program. Integrating programs with social media platforms, like LinkedIn, Facebook, and Twitter require continued posting and new efforts. In particular, key factors such as differentiation, innovation, and attention require additional effort. Also, the pursuit of SEO algorithms can detract from the innovation and differentiation of the project.
SEO is not as easy as advertised, and like most things, it must be done well. This includes developing content, key words, links, marketing phrases, and pitches, in addition to continued maintenance, measurement, and modification.
It is not cheap – SEO consultants frequently charge $1000-$3000 per month. If you do it yourself, SEO requires significant time spent in branding and writing.
It takes time – SEO consultants generally say it takes 3-6months to even start showing results
Almost by definition, the big guys win. SEO placement is governed by clicks, and the more you naturally get, the more likely you are to get hits.
Another concern is the math – It is generally agreed that you need to focus on high placement, as first place in a search accounts for about 60% of clicks (and the first page 90-95% of clicks). Between 2013 and 2018, Google revenues have increased from $55 million to an estimated $140 million, which has two implications. First, paid search must work for many advertisers, because it is growing so fast. Second, paid search is increasingly taking up first page listings (which makes SEO that much more difficult.)
SEO advocates frequently ignore providing documentation of economics and results in determining when is SEO overrated. In contrast, Google goes out of its way to provide free analysis of clicks, conversions, and pathways to success.
Nevertheless, there are ways to benefit from using SEO:
The most important way is to have an integrated program, including social media, website development, and other marketing tools (like email, targeting, networking, and paid searches). Facebook, Twitter, LinkedIn, Google Plus, Pinterest, and industry sites should all be considered.
I frankly believe that networking and targeting can be the most productive techniques, because they engage interested clients. Getting email addresses and posting are key tools to make SEO more effective.
Focus on getting content and processes right. For example, spelling and inappropriate language can kill a campaign. It is always better to be polite and positive.
Evaluate your effort and measure your results, and change tools when you see success or failure.
Always consider how you are reaching your potential client and being interesting to them.
Don’t be afraid to test and experiment. In particular, if you are using outside resources, be sure to develop clear goals and measures for success.
SEO can be more effective for local postings, especially for service enterprises like repairs and restaurants.
In short, SEO and social media can produce great results. However, they must be done well, they must be part of a total marketing program.
Dr. Bert Shlensky, president of Startup Connection ( www.startupconection.net ) has an MBA and PhD from the Sloan School of Management at M.I.T. He served as the president of WestPoint Pepperell’s apparel fabrics business, and President and CEO of Sure Fit Products. Having provided counseling to over 2,000 clients, he now focuses on working with select start-up and small businesses.
When you want to stand out, reach out to Bert for the tools that will build your “sticky” brand. My focus is on understanding and analyzing your dilemmas and challenges, so your company becomes profitable faster.
Call (914) 632-6977 or email me at bshlensky@startupconnection.net. Don’t leave without signing up for our useful free eBook!
Feeling stumped or overwhelmed? Contact Bert at (914) 632-6977 or Email to start the process. Thanks!
Operations is finally getting its rightful place in small business strategy. Automation, technology, customer needs, and the sharing economy are becoming vital components of the branding and marketing process. In order to achieve marketing success through operations, here are some examples:
2. Excellence – There is an ongoing debate about pursuing excellence versus change just for the sake of change. This topic is affected by several issues and we need to understand how problems can require different solutions. Businesses are subject to radical change, so they need to build mechanisms into their processes. While we will face more uncertainty and instability, we need to focus on changing and simplifying processes to reduce the risks. Strategies like pivoting, developing and testing/measuring/adapting need to be built into our organizations.
Open systems are becoming a critical aspect of great cultures and they often reject bureaucracy, authority, and hierarchy. Open systems encourage participation, diversity, new rules, and to some extent, chaos.
SEO is frequently touted as an effective marketing tool for small business. I receive 3-5 e-mails per week from companies that provide SEO, promising things like first page placement, with inexpensive and quick results. SEO can be highly effective, especially within a comprehensive program. Is SEO overrated for small businesses? I think these claims should at least be reviewed.
It is not cheap – SEO consultants frequently charge $1000-$3000 per month. If you do it yourself, SEO requires significant time spent in branding and writing.