VBO-ing The Race To The Bottom

Posted on Posted in B2B, B2C, Cust Intimacy, Discounts, Key VBO Concepts, Lulu Lemon, Mark, Retail, Strategy

When did smart execs and entrepreneurs forget how to price their goods and services?  Is it my imagination or are companies engaged in a ‘race to the bottom’ where the water is so bitter cold that only the monsters of ecommerce and multinational corporate predators can survive?

Behemoth Inc. says they want to curb discounts, but executives shake in their boots as they conjure up images of big name retailers who tried to wean their customers off discounts. Remember how J.C. Penny almost went under because their Apple executive eliminated discounts?  Or look what happened when Tailored Brands (Men’s Wearhouse) bought Jos. A. Bank and eliminated the ‘Buy One, Get Two, Three or Twenty-Seven Free’ promotions.  Tailored Brands rendered the Bank brand worthless when they essentially wrote off the $1.8B purchase price in 2016.

So what’s the problem?  Do we have a read on what’s causing this pricing spiral?  The consensus is that a combination of online price transparency, pressure from Amazon, and the newfound influence of consumers have created a price pressure that has never existed before.

Discounts have been with us for a long, long time.  Price was always part of any negotiation. But, it’s strong brands and innovative business plans that drive the market.  Discounts, promotion, back end monies, spiffs, etc. all seem to be the way weak brands and slow companies try to overcome their inadequacies.  They use price because they cannot generate value.  They use price because they don’t understand their customer or the end user.

Yes, I know that consumer and influencer marketing may seem radical, but really folks, it’s 2018.  Office Product and Office Furniture manufacturers have been working the consumer since the advent of Western Union.  Consumer marketing is just taking on a new form – with the consumer in the drivers seat.  In today’s marketplace, if you don’t know how to work with the consumer in both a B2B and B2C business environments than your company will discount deeper and pricing will sink you faster than the iceberg that doomed the Titanic!

Feeling cynical?  There are companies out there where a value added culture, focused on the consumer, the end user’s lifestyle and driven by how consumers research and purchase create strong margins and increased number of transactions and interactions.  Here are a few diverse companies that continue to drive premium price while developing intimacy and influence with the consumer;

Lulu Lemon – They sell premium activewear, but they’re more than a store. They’re thriving despite the fact that you can buy activewear at Target and Kohls for a fraction of the price.  It’s about their brand, the commitment and expertise of their influencers and the in store experience centered on Yoga and training. Lulu Lemon creates product around their people.  They are the true ‘pros from Dover’.

Chic-Fil-A – They are privately owned, sell only chicken, close on Sundays and evenings and are poised to become the 7th largest fast food company.  Can you imagine McDonalds closing on Sunday or shutting down the late-night drive thru? Quality products, value proportions and culture create positive customer experiences that tip the price/value calculation toward premium prices.

Apple – They have a no discount policy but do make a few exceptions – bundles with other product for Black Friday and reduced prices for products where new generations soon become available. The rest of the year?  Anyone can walk into a store, test and handle the products, work with a certified “Genius”, or schedule training. In some ways, Apple created the original brand ambassador and ‘influencer’ who is fiercely loyal and drives their office, friends and family onto the website or into the Apple Store.

Activewear, Fast Food and Electronics/Computers.  There are several areas of commonality and none of them is price.  It’s all about having the right people in customer facing positions, a culture that develops experts in this field (Zappos does it online and Lulu Lemon provides the experience in store) and the fact that they all have brand ambassadors and product influencers that drive the purchase.  Interestingly enough, it’s evangelical influencers that create many loyal customers for Chic-Fil-A based on the ownership reinforcing their business practices with their religious beliefs.

So what’s the bottom line here?  In my humble opinion, companies now have a choice about resource commitment.  You can spend or invest.  By that I mean that discounts are a temporary, short term salve that serve to reduce brand value and the value of the service you provide.  On the other hand, if you allocate resources to develop your people, your culture and your brand while continuing to engage the ultimate consumer, then you will have built a brand foundation that will grow your business long-term.

When you read my book, Marketing Through Value Based Outcomes, you’ll see that I use my own company as an example of utilizing a mix of traditional pricing practices and online / social and brand influencers to gain the desired profit and volume outcomes.  You’ll see how I made decisions to forgo commodity volume opportunities to focus on value added, high margin product categories that created a respected brand. I walk through examples of my thought process and how I made decisions that focused on targeting the consumer while providing dual value through partnerships and social influencers.  This process invigorated the brand and was the key to establish value added/premium price points detailed in the business and product introduction plans.

The bottom line is that while sales are important, profit is what pays your salary.  Small companies cannot win that ‘race to the bottom’.  But a well balanced marketing plan powered by an influencer driven consumer focus will create long term opportunities that drive high profit growth.  It’s a win/win designed to work with partners at many levels.  Isn’t that what business should be all about?

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