You’ll find there’s money in complimentary goods

King Camp Gillette is widely credited for innovating the razor-blade model, in which he would give drastically reduced razors in order to sell the highly profitable blades. Other businesses like Microsoft and Sony have recently adopted this in giving away their gaming consoles at a loss in order to gain money from loyal customers in the form of future online subscriptions.

Small business owners should be forced to think about the razor-blade model, and should be asking themselves how can they create new services or offer complimenting products that improve their current business model?

Do free consultations bring in more customers?

Does giving tonic away for free with the sale of gin – sell more gin?

Does creating a story behind artisan jewellery, and giving it away for free increase sales? 

Take a good look at Gillette and ask yourself how the razor-blade model can help you.

What your customers will tell you

In continuation to my last post I want to give an example of what your customers can teach you.

In 2002 McDonalds reported its first quarterly loss (347.8million) in 47 years. The board wasn’t impressed – so they brought in Jim Cantalupo, a recently retired McDonalds Exec. Jim understood his customers values and interests and more importantly, he understood that they constantly changed. He needed to know who his consistent and heavy users were and why they chose McDonalds.

For a long time – McDonalds was focused mainly on children. Advertising happy meals with cool toys inside. Hell I remember getting my first toy, a cool character out of Aladdin.  Parents went to McDonalds because they could relax and connect with their children. Mothers would generally choose not to eat very much, maybe pick a fry here and there – but often chose to go hungry because connecting with their children outweighed the cost of not eating.

In 2002 children were still essential to the success of McDonalds but now there was more to it. Under Jim’s direction McDonalds decided to learn more about their customers by sitting down and getting to know them, by interviewing them while they ate and by asking them questions. Jim and his team found out moms hold the power of choice. In fact, mom’s were more likely to exercise their veto vote in 2002 because of the growing number of food options available. A family that was going to McDonalds twice a week was now only going twice a month.

Why? Well McDonalds didn’t really offer any food that wasn’t for lack of better term “dirty”. With growing concern of health and wellness in society and among the minds of mothers – one can understand why McDonalds would start to take loses. Under Jim’s direction McDonalds started to introduce their healthier eating options – the salads. In the 12 months Jim acted as CEO McDonalds saw tremendous results – all because he chose to learn more about his customers.

What can you do to learn more from your customers?

The secret to customers

Listen to your customers. Interview your customers to find out why they buy what they buy. What are they giving up to buy your product or service? Are they trading up or down?

Understand that many of your customers will be buying from you for different reasons. But it’s impossible to know this until you reach out and talk to them. Reach out and ask your customers and maybe you’ll discover a thing or two your business can improve on.  

Give your business personality.

Ask yourself - How much personality does my business have? If your answer is matching shirts and stylized name tags – there is a lot of work to be done. Personality is important and it is what stands between your business and potential customers. Whether your on a main street or competing with 100’s of other online businesses – personality is essential.

BookPeople is a small bookstore that does just this – they have tons of personality. They use their website to communicate that they’re a small business and can be trusted. It works for them because they aren’t trying to be huge. Dig a little deeper and you’ll find that store itself has so much personality to it. The children sections have collages of “I’m Bored” put up on walls with puppet hats and masks hanging around.

They have an old antique stove where the cooking section is, and old barber chairs to sit in if your looking around in sports or technology. They’re competing with bigger book stores because they’ve developed themselves into a landmark. Book enthusiasts all around Texas flock to BookPeople for readings and autographs. Customers are encouraged to stay, read and spend entire days looking around – and it all comes from their personality.

 

 

Use the success of Bookpeople as an example, and question the personality of your business, ask yourself what are you trying to communicate? Why are you in this business?

Being boring and mediocre is easy. Giving your business a personality and keeping it is difficult. You need to be committed to your position and the personality of your business, but the moment you start doing this – customers will think of you first.

Be conscious of the prices you set. Don’t Discount.

We live in an age of discounts. There are herds of people who call themselves thrifty and wait until things go on sale. Thrifty does exist, but a majority – if not all of the things we buy discounted are cheap. And this is ok for many of us, we expect inexpensive things to fall victim to holes, or inefficiencies – but it was cheap so we buy a new one.

This is one big problem. Our society is causing the the destruction of small businesses in the pursuit of bigger mega conglomerates like Wal-Mart or Target. Cheap is best we say. Here’s why we don’t win with lower discounted prices.

Wal-Mart currently employs 2.1 million people worldwide, and that’s not even mentioning the people who rely indirectly on Wal-Mart – like the manufactures. That’s nearly 2.1 million people who make minimum wage and/or just above it. These people have no where to shop other than Wal-Mart. The manufacturers that rely on Wal-Mart pay less than $4 a day to their employees. Wal-Mart is directly responsible for putting millions of people into poverty. Now lets see how in the 2008 recession – Wal-Mart won. Emek Basker found that for every 1 percent decrease in personal disposable income, Wal-Mart revenues increased by 0.5 percent. During the recession Wal-Mart announced a 6.1 percent rise in sales.  

Because of our societal tendency to buy the cheap, we love Wal-Mart for what they offer, but they are actually destroying expertise. We’re losing small-business expertise because it is impossible to compete with those deep discounts. We’re trading in expensive well-made expertise for highly discounted junk.

And the worst part is. Only about 1-2 percent of items that the public knows the prices of are discounted heavily. 1/3rd of the stock Wal-Mart carries is higher than average prices. And the average savings on the rest of the stock is 37 cents. With 1/3rd of those items carrying a savings of no more than 2 cents.

Here is the distinction I want to make. If your a small business – recognize your expertise. Own it and position yourself this way. Use your superior customer service skills to get ahead. Don’t discount it. High quality services and products are rarely discounted – so show people that you are in a different league. Do not try and compete with Wal-Mart’s low rates.

As a small business you need ways to promote yourself in your local community. All it takes is a little experimentation.

Be different. Do tests.

If your a small business, own what your good at, own your strengths. Being a small business allows you the ability to more freely test ideas. So think unconventionally.

Are you a vendor, manufacturer or retailer I want to give you an example. Take shampoo. Shampoo is one of the things most people become loyal to. People are passionate to the point of conviction and zeal when it comes to what type of shampoo they use. Some of the reason is because no-one wants to risk buying a shampoo that smells bad. Not only is most shampoo sealed so you can’t test it, it smells differently in the hair. What kind of customer wants to waste 15 dollars testing?

Well… I started asking the question how could one create interest in an already very saturated market? Well what I came up with is unconventional.

1) Offer to shampoo and blow dry peoples hair at the source, in the retailers. It creates exposure, it’s measurable and it’s affordable.

It may not be right, it may be, but the very purpose of it is for its unconventionality. It gains exposure through word of mouth, and the media would definitely eat it up. Think Buzz.

My point is. In order to have an edge in todays market we need to be different.

What is your small business doing to be different? 

Choosing the right customers.

Just as you need to choose the right employees for your business, you need to choose the right customers. If you have heard of Pareto’s principle then your familiar with the rule that 20% of your customers provide 80% of your business. What businesses need to ask themselves is -- how can they provide that 20% of people the best experience. This is not an easy question to answer, but on discovering it businesses will be able to fully develop their culture and ambiance to attract these longer term customers.

When a potential customer comes in and buys something it means nothing to have them buy something once, a business thrives off of repeat customers. Businesses should look to achieve a high customer conversion rate, a good place to start is by looking at successful competitors. What do they do? What can you improve on? 

I have some personal opinions on achieving a high customer conversion rate and I would one day like to experiment with it through using social norms. Conventional methods (and they do work) will tell you reward programs (free coffee, airmiles etc..) are one of the most effective tools in converting people into long-term customers, unfortunately with so many companies offering rewards – companies need to discover new means of converting customers.

What customers are best for your business?

Choosing the right people can mean success

Choosing the wrong people can mean failure.

Small Businesses are too often built on the shoulders of one or a few people. Unfortunately they can also crash on the shoulders of one or a few people.

When you need to cut your losses and fire someone, don’t tell yourself excuses. All to often we tell ourselves they can succeed. Or he’s my guy. Or I can coach him. The truth is, there will be people who just aren’t right for the job – solve the solution and remove them quickly. One bad person can prevent the success of an entire team.

Instead, when hiring be thorough. Be persistent in finding the right people for your business. If your having trouble finding the right people – it may be a tell tale sign that your not attracting the sort of business or individuals that you thought you were targeting. It might reveal a need to revisit your stores culture and reshape it to target the correct audience.

Today’s question. Who are your most important employees? What do they do to create success for your business? 

Innovative? Kind of. Awesome for the new entrepreneur? YES!!!!

I’ve compiled a short lists of companies that can be a motivating force for the new entrepreneur to start it up!

Magic Bean is an new online incubator of start-ups. Apply for their 2011 year, and get advice from people that have done it!

http://magicbeansinc.com/

Build your website with shopify, become the most successful among the other entrepreneurs, or even just in your category and win some HUGGEE money. Along with the chance to sit with some top industry experts and entrepreneurs  like Seth Godin, Gary Vaynerchuck and Tim Ferris.

http://www.shopify.com/contest

Making profits and changing the world for the positive is your thing? Then come up with a great idea as a social entrepreneur. It’s free. Work in several stages to come up with an idea, and start incubating that idea. This year: Trim the waste of fashion. Winner receives $40,000 toward their business

http://www.yoxi.tv/

Got a creative project you need funding for? Well it works like micro-financing except you never need to pay anybody back. I highly recommend this site if you have a brilliant idea, some execution and need a further push.

http://www.kickstarter.com/

Outsourcing can help the new start-up cut costs, look to websites like freelancer to help you do that.

http://www.freelancer.com/