Too often businesses resort to price cutting strategies in their attempt to woo customers and to compete more effectively. Businesses lower prices in reaction to price wars or in an attempt to increase their market share. While this strategy does force your business to review costs in order to reduce them as much as possible, your margins may be reduced and the likelihood exists that a competitor will at least match your price and possibly price even lower than you. This scenario leaves you in worse shape because to maintain your margin you may have reduced your costs by lowering services, personnel, and as a consequence, the morale of your organization. You also lose the competitive advantage you originally sought in the first place. Competing on price is the poorest way to compete.
The Best Way to Compete
If competing by price is ineffective, how do you compete? Customers have always been willing to pay more for value. In other words, do they receive more benefit out of the product or service than what they paid for? If customers shopped on price alone, we would all be driving the cheapest cars, buy generic products, only watch network tv, and wear plain, inexpensive clothing. This obviously doesn't happen, so consumers must also be willing to spend more on goods and services that provide extra value to them.
So what do people value? Today, many people face poverty of time issues - excessive demands on already busy lifestyles. Businesses that provide convenience to their customers that relieve peoples' busy lifestyles are perceived as having a great deal of value. Convenience is a value that people appreciate and for which they will pay higher than average prices.
If you don't believe this, think about your last visit to a convenience store. What made the convenience store convenient? The store was located near where you work or live. It was easy to drive or walk to. You could park by the entrance. The store carried 80% of the items that supermarkets carry - addressing most of your needs. The store was small, so you didn't have to spend a great deal of time negotiating your way around the store. The checkout lines were short so once you choose your purchases you could get out quickly. Convenience stores are usually open long hours - up to 24 hours a day, seven days a week. For all that convenience, how much do you pay for items at a convenience store? A great deal more than you would at your local supermarket!
Using the Convenience Store Model
How can you add convenience to your service or product? You need to think about how your service or product would make life easier or save time for your customer. Lets see if the convenience store model can be applied to marketing your business.
Using Convenience Strategies in Retailing
Retailers need to examine the importance of their location. A popular concept is one stop shopping. This is where a consumer can do most of their shopping in 1 place. A convenience carries a wide variety of items. While your store may not be that type of store, you may want to consider scrambled merchandising - the idea of carrying inventory items not usually found at your type of store. You may also want to consider ancillary services or items. These often add a great deal of profitability as they usually don't add any fixed costs but do bring in more incremental revenues. If that is not a viable strategy, consider locating near a draw so that customers don't have to travel far to do business with you while they are running their errands. Also consider how accessible your parking area is to your main entrance.
Convenience stores are open extended hours. Maybe you should examine your store hours and, if necessary, change them to fit your customer's busy lifestyles. This may include being open earlier in the morning, later in the evening, weekends, and holidays to accommodate longer work hours or people working 2 jobs, or on a second or third shift.
An ultimate in convenience is to go to the customer, rather than have them come to you. A recent American Express survey found that 78% buy on-line because of speed and convenience. Only 15% say lower prices are the main benefit. All retailers should have an on-line web site which allows shoppers to buy the product and have the item shipped direct. However, many retailers find that shoppers are using their web sites to complete an information search before they make their decision. Customers don't want to be bothered to have to drive around from store to store to make to evaluate an item before they make a decision. Why not make their search even easier? Your web site should provide practical information for your customers, such as what items are in stock, can you order on-line, availability of the item at the closest store, where the closest store is, and directions on how to drive there. This will save your customers a great deal of time. Something they will appreciate and be willing to pay for. Restaurants could have their menu on-line, the daily specials, delivery service options, an on-line reservation system, and travel directions. To provide more convenience and to give customers an alternative way to contact you, phone numbers should also be available at the web site. Customers also appreciate alternatives to return unwanted items. L.L. Bean will take back any returned item with or without a receipt with no questions. Companies such as Eddie Bauer has set up a return strategy that allows a customer to either mail an item back to the company or simply return it to the store itself for a refund.
Old services can provide still provide many opportunities for you. Consider installing an ATM. Customers love the idea that they don't have to drive to their bank at the banks hours to access their own cash. You can charge a processing fee for using the ATM and research indicates consumers will spend much of the cash they draw out at your business.
You may want to consider other vending ideas as well. Vending machines can be placed almost anywhere, offer 24/7 convenience, and almost any inventory item can be dispensed from a vending machine. Home delivery is a valued service that allows you to not only sell a product but also to charge an extra fee for the convenience of bring the item to the customer. Fedex charges a premium for the concept of overnight delivery. Takeout Taxi is a home delivery service that specializes in bringing dinner that you ordered from a participating local restaurant.
Product Strategies That Provide Convenience to Customers
Manufacturers should consider producing items that will save people time while providing them with the convenience they so highly desire. Campbell's soup now comes in a ready to serve portion. All you have to do is place the soup contents of the jar in a dish and microwave. Windex sells a window cleaner that hooks on to a hose so that you can spray your outside windows without the hassle and time it takes to wipe them off. The result is a streak free clean window complete in a fraction of the time it would take to wash windows by hand. Kellogg's created a cereal “bundle,” a package of cereal already in a bowl along with the milk and juice to save time making a breakfast in the morning. Folger's markets coffee singles, a way to quickly enjoy a cup of coffee without the inconvenience of setting up a coffee pot. The latest technical convenience is voice activated software for computers and palm pilots. This allows the user to make productive use of commuting time. All these products sells for two to three times the cost of their regular products. Customers don't mind paying the higher prices for what they perceive are products that will save them time in their busy lives.
Convenience Strategies Are Win/Win
Providing convenience for your customers is a win/win situation that provides value to your customer while allowing you to have a higher gross profit.. Its a great way to position your business as unique from the competition without having to enter in to a price war. Your customers will love you for saving them time and will reward you handsomely by paying a higher price for convenience and allowing you to garner a healthier margin.
Rick Saucier is a professor of management at St. John's University. He can be reached at RSaucier@CSBSJU.EDU
