Differentiate Or Die*

As the American continent was settled, pioneers took with them the things they couldn’t do without. Those things they could do without, they did without. This provided an opportunity for the first peddlers.

A peddler would load up a Conestoga wagon with anvils and thimbles; frying pans and print fabrics; hammers and saws; gunpowder and fishhooks and filleting knives; coffee and sugar and salt. He’d then pull his rig up in the center of the new community and start banging a drum to get the attention of the pioneers. (This is the origin of the nearly obsolite term “drummer” to mean traveling salesman).

Since there was an existing demand for nearly everything the pioneers had left behind, these early peddlers could sell nearly everything in their wagons, quickly, at a profit.

As distribution improved, the general store became the more permanent variant of the Yankee peddler, the drummer, the traveling salesman. The outgrowth of the general store was the department store.

The one constant was demand. Demand for nearly everything. Until distribution became cheap and easy, goods would continue to be in short supply. When a manufacturer could find a peddler, or a store, or a department store to stock his goods, the market would find, and purchase, those goods.

But that hasn’t been the case in quite some time, has it?

Distribution is no longer an issue. Now, we have choices. Limitless choices. With the maturation of the Internet, shoppers literally have the world available at their fingertips.

This amazing proliferation of choices is a result of, well, choice. Choice forces more choice through the process of division.

Take a single item, or service, say dining. Originally there were inns or roadhouses. Places where a traveler could buy a meal, a libation, or a night’s lodging. Then the process of division set in to create categories.

Roadhouses divided into hotels and restaurants. Hotels divided into hotels, motels, campgrounds, and RV parks. Restaurants divided into fine dining, family restaurants, and fast food.

Fast food became Mexican, Italian, Chinese, and burgers.

The marketing of burgers has split into restaurants appealing to children (McDonalds Happy Meal and playgrounds), to adults (Have it your way at Burger King), to people with big appetites (Hardees and the Monster Thickburger), to people looking for value (The $6 burger for only $3.95 at Carl’s Jr.).

The burger wars have even spilled out of fast food and over to TGI Fridays and their Meyer Natural Angus ^(TM) Hamburger – targeted at people willing to pay extra for quality.

How long can this division process go on? As long as more suppliers want to get into the game.

In fact, it must go on.

Each division in turn becomes a separate category, which invites more division. Each division offers the consumer more choices. If we’re to convince shoppers to choose our products (or services) when they could choose literally anybody’s, we must differentiate our products (or services) from all of the others.

This is contrary to what most people consider common sense. It appears logical that if McDonalds has the biggest percentage of hamburger sales, that taking a couple of percentage points from McDonalds could make a small company rich. We'll just do what McDonalds does. Unfortunately, without differentiation, those percentage points simply aren't available.

As a consumer in the mood for a burger, would you choose a quarter pounder with cheese from McDonalds, or a comparable sandwich from the new ABC Burgers – a company you’ve never heard of?

For that matter, would you choose ABC Burgers, or Burger King? Hardees? Carl’s Jr? Rally/Checkers? Business nearly always goes to the better known company.

That is, unless we can come up with an excellent reason for you to choose ABC Burgers.

I promise that reason won’t be “We’re just like McDonalds.”

It helps to get inside the consumers' minds and understand that every decision carries the risk of being the wrong decision. Consumers minimize that risk by trusting that their previous experiences will be repeated. Indeed, companies like McDonalds, and Burger King, and Hardees go to great lengths to insure that the burger they purchase in Bismarck will taste exactly like the burger they purchase in London.

A consumer might buy an ABC Burger instead of McDonalds quarter pounder if it were bigger, or less expensive, or was grilled over mesquite, or used three different cheeses, or was garnished with ABC’s proprietary barbecue sauce, or if they offered a money back guarantee that you’d love their burger.

All of these reasons are examples of differences.

In order to persuade anyone to purchase an ABC Burger, we’ll have to come up with an excellent reason to buy one. And choosing among multiple options always comes down to differentiation.

I presume you want to persuade people to buy from you. Does your company exist among multiple competitors? Then, we’ll have to come up with an excellent reason to persuade those people.

Choosing among multiple options always comes down to differentiation.

What makes your company different?

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*Differentiate or Die, Survival in Our Era of Killer Competition is an excellent book on this topic by Jack Trout. I recommend it highly.

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Can Breakeven Analysis Predict Your Coupon Success?

Pretend with me that you own a snow cone cart (or as they call it in the South, “shaved ice”).

You’ve mentioned to a friend that your sales are ok, but that your business isn’t growing. She suggests that since people love a bargain that you distribute a “buy one get one free” coupon.

Can you predict the impact of that coupon?

Yes, I believe that you can.

You financed the cart and are paying $200 per month for it. You pay $300 per year for your license to sell food. Your liability insurance runs $600 per year.

You use $15 of dry ice each day to keep your shaved ice cold. You use your car to tow the cart to the public park in which you sell your cones, and spend about $30 per week in gasoline. You use roughly $0.17 in syrup, paper cones and napkins for each snow cone served. You purchase your ice for $0.80 per bag, and use roughly 5 bags each day. (Some always melts by the end of the day and is wasted, but it’s better than being caught short).

Oh, and you sell ‘em for $1.50 each.

We’ll use a technique called “break even analysis.” This technique is useful in start up operations to calculate the number of sales at any particular price point to “break even.”


Assuming that demand is roughly 14 cones per hour, and you are open from 10am to 10pm six days a week, what’s your weekly revenue and net profit?

Now, what’s likely to happen when your "buy one get one" coupons are distributed and redeemed?

People won’t drive clear across town to save $0.75. Your coupon renewal will happen within a six to ten block radius.

Humm.

These are already your regular customers. Some of your coupon sales will canabalize your regular sales. But then, some of the regulars who haven't been by in a while will be reminded by the coupons. And, of course, there are always going to be people who have never bought before.

Let’s make some assumptions, shall we?

1) The coupons will boost your business by 6 redemptions per hour (12 cones).

2) Three of those coupons will be renewed by your existing customers.

In other words, your gross sales will increase from 12 to 18 per hour, but you’ll be dispensing 21 cones per hour – 210 and 252 per day, respectively.

Now your variables will look like this:

So, are the coupons a good idea?

Can you apply break even analysis to your next promotion?

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How Housing Affects Your Sales

Brace yourself. The good times are about to stop rolling.

The real estate market has stopped expanding. Some economists are predicting the bubble will burst. Others predict a soft landing. But any way you cut it, the bubble has stopped growing.

The inventory of houses in the hottest growth markets continues to grow. A year ago in the hot zones houses sold in less than thirty days. Today the average home in those communities stays on the market for at least six months, and the number of months is growing.

Next step? Homeowners will decide they can’t make a seventh mortgage payment on the old place, and will start dropping price to promote a quicker sale. It won't take long before everyone is forced to drop price.

Then there are those interest-only loans that people used three years ago to buy more house than they could afford. The loans were short-term, and converted to a conventional principal plus interest loan about... well, about now. That means a much higher house payment - a payment that many of them will no longer be able to afford. In markets like San Diego and Las Vegas the repossession rate is already growing at an alarming rate.

Why am I talking about real estate in a marketing column? Because Americans are a peculiar people. Each time we determine that we’ve improved our net worth, we spend about 10% of it.

For the last six years, American homeowners have spent with reckless abandon as they perceived growth in their homeowner’s equity. They didn't spend actual cash, but rather added to their credit card debt. The growth has stopped. The debt remains. Consumer optimism is about to screech to a halt.

Soft landing? Bubble burst? Doesn’t matter. Without upward motion in real estate consumer spending is about to change abruptly.

What will you do when consumer optimism ends?

How are you going to attract new customers to your business when they’re afraid to spend?

Why aren’t you doing that already?

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Do You Have To Drop Price To Increase Sales?

In 1985 while living in Florida I paid $1,000 for a 1976 Buick Century Wagon.

The wagon was a bit older than I would have selected under other circumstances, but the previous owner had the most incredibly detailed maintenance records on the vehicle. I assumed (rightly) that he must have kept the car in remarkable working condition. Besides, it was the appropriate size to ferry all of the kids to their various committments.

That car was one of the most dependable I've ever owned.

Two years later, when I accepted a job in California, the mother of my children said "This car is now eleven years old, and I don't think I'd like to drive it across the country. Let's sell it and buy a different car when we get there."

Then she added "And I want to sell it."

Like a number of first time advertisers, she called the local newspaper's classified department. Discovering that every additional word cost her more, and trying to save money, she dictated "1976 Buick Century Wagon. Must see to believe. $500. Call (904) xxx-xxxx."

Total cost? Fourteen dollars for ten days.

Days passed.

More days.

No phone calls.

At the end of the first week, she asked "Do you think I need to drop the price? Would it sell at three hundred?"

I said "Let me see what I can do."

I called the paper and changed the ad to: "Perfect second car for family with children. Clean, incredibly maintained 1976 Buick Century Wagon in perfect working order. Automatic transmission, cruise control, electric adjustable seats, electric windows, electric rear window, electric retractable antenna, air, AM/FM casette, new tires, good upholstery, headliner and carpet. Comfortably seats nine. Everything works. $1,000. By appointment at (904) xxx-xxxx."

Total cost? $37 for the week.

We got exactly three calls the day the ad hit.

One buyer asked to come see the car immediately, and brought cash. He counted out the bills, I signed over the title, and called the paper to cancel the ad.

I think there are two lessons here.

First, spending too little to do the job is the most expensive advertising that any of us will ever do.

As Charles Mortimer, former Chief Executive of General Foods said at a 1963 shareholders meeting, spending too little in advertising "is like buying a ticket three-quarters of the way to Europe. You've spent your money but you don't arrive."

Second lesson? Often, it ain't the price. It's the sell.

You see, every decision carries the risk of being the wrong decision.

As advertisers, our objective is to minimize the appearance of risk in purchasing our products or services.

Dropping price can reduce the risk, but it can also kill profitability.

Providing our prospective customer with enough reasurrance that (s)he's making the right decision also reduces the risk. Customers are willing to pay more when they're sure they're doing the right thing.

What can you do to minimize risk?

Can you do it without dropping price?

Better yet, can you agressively raise your price, and do a better job of selling?

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