To Compete With Amazon Try Adding On Instead of Discounts
By Bob Phibbs
Imagine if this was your retail business: “Given our view that Bed Bath & Beyond was unable to post positive comps this last holiday season despite a robust consumer backdrop (best holiday since 2005), we find it difficult to see a turn in sight,” a J.P. Morgan analysts said.
Analysts were expecting BBB would have experienced an uptick in sales by now with a modernization program and a turnaround plan aiming to revamp stores.
The problem? Bed Bath and Beyond is having difficulty competing with Amazon unless they use coupons and discounts which punishes their margins.
And just so you know, the company’s gross margin has declined over the past 26 consecutive quarters; a trend that is expected to continue.
That’s eight years of margin erosion…
Look I get it, it seems so easy to offer a coupon so the buyers will flock into your brick and mortar store in droves. Coupons offer a deceptively simple concept that makes it fun and easy for consumers to just save a buck.
The value proposition from coupons is that when you offer them more shoppers will consider doing business in your store or will come back sooner. The thinking goes that when the shopper is in store, they will more than make up for the discount offered because through excellent merchandising and customer service, they will buy more products. Like coupons in = more money in your jeans.
In theory, this is how the most overused lever in marketing a retail store works. And retailers also like using this form of promotion because they feel they can accurately measure its effectiveness when customers redeem their coupons.
Which is how we know BBB is playing a losing game. Their sales have flatlined since the end of 2014. In the latest quarter, in fact, fewer of the coupons were redeemed but there was an increase in the coupon amount.
The trouble with coupons is if you use coupons and discounts long enough, you destroy the loyalty to your brand and, as BBB has found, you have to increase percentage off just to get any traction.
You exchange their loyalty to your curated products, your sales team, and your merchandise selection to the coupon or discount.
And the bigger the discount, the harder it is to convert a coupon shopper to your regular prices.
No coupon or discount? No dice says the smart shopper; I’d be a fool to pay full price.
So, she stays home until the next mailing or mobile coupon or Facebook coupon is issued. The vicious circle continues, and the retailer cries the blues.
And as few shoppers pay full price to balance your promotions, your margins die, and you have less money to put back into your stores – squarely the one place you can compete with Amazon and the rest.
If coupons aren’t the way to compete with Amazon, what is?
You have to get more from shoppers, not less.
I recently upgraded to the new iPhoneX Max. I forgot about buying it a new cover because one wasn’t offered to me. When I got home, I remembered I had an older iPhone8+ cover and bet it would fit.
I put the cover on the phone and it fit perfectly. Boy was I smart!
I left to speak at the TrekWorld conference in Madison. At lunch while I was talking about using Facebook live, a young guy next to me asked, “Where did you get that cover for your phone?” I told him it was an old one and how smart I felt for recycling it.
He replied, “But you know you covered up the second lens; you won’t be able to take a horizontal photo.”
I laughed because I hadn’t been able to take a horizontal photo and when I hit magnify, the screen went to black. I had planned to call Apple when I got home and complain something was wrong.
What I should have done was buy the add-on cover at the time of purchase and I’d have been much happier.
I’m sure many of your customers would be much happier with their main purchases with add-ons that helped them enjoy the products more; the complete shoe care for the navy wingtips, the LED lightbulbs with the chandelier, the motorization for the window coverings – you get the idea.
But those add-ons simply aren’t happening.
Neither are upgrades.
That’s because retailers have all but abandoned customer service or retail sales training in search of how to boost foot traffic. Yes, they’ve kept the lights on but at great cost to interaction with the brand ambassadors – the true ones on their salesfloor – not the purchased ones trying to peddle stuff on Instagram.
When an item such as a coffee mug is on the shelf, its value to the consumer is $2.25, but when a salesperson is able to paint the picture of how it will feel to wake up with thatparticular coffee mug, the shopper begins to see it as theirs.
The value if it is theirs is $5.75.
It’s called the Endowment Effect; merely a suggestion of ownership is enough to make us feel possessive.
But a product on the shelf can’t do that alone.
To compete with Amazon and the online dirt-scratchers who underprice your merchandise, you have to be adding on so you get more items out the door on each visit and those items as a unit have to have a higher margin.
Sears used to know this, they had a true loss-leader washing machine that salespeople referred to as the golden spike. That meant that model was to be seen with a golden spike through it to be able to sell off and compare with the more expensive washers with better features. If a salesperson sold that washer, they were gone.
That’s back when retail salespeople could make a living working retail because employers incented, bonused, or commissioned the job the salesforce did each day.
Because of that, customers felt it was their store. Many independents still crow that’s what their customers say.
But without sales training, most employees are perfectly happy selling the golden-spike camera or golden-spike couch or golden-spike suit.
And without putting enough bodies on the salesfloor to help sell the merchandise and create an exceptional customer experience, employees complete tasks over customer engagement.
So now the shopper relies on their own good instincts for buying.
And they skip the iPhone cover; the products that can boost their satisfaction and your bottom line.
Try this in your store instead of coupons and discounts to compete with Amazon: train your staff to sell your merchandise.
If you want to use coupons and discounts occasionally, you must make a point to your staff that the goal is to grow margins to pay for raises and bonuses with those value shoppers.
Try this in your store too…
If your employees can only sell the golden widget, because they themselves can’t imagine paying for more benefits, give them training but understand, they are the reason – and by default – you are too, that you can’t compete with Amazon.
Until and unless you accept that, you’ll end up like BBB where investor confidence is fading and sales are stagnant while we are in the best retail environment in a decade.
Quite simply if you're not making money now, when all the stars are aligned for consumers to want what you have to sell, wait until we hit the inevitable speed bump in the economy.
The use of discounting creates an addiction in your customers.
The first time they use one, it is the best feeling in the world. But over time it takes more and more coupons and discounts to achieve that same feeling. And then they need coupons just to come to the store.
I received this from the National Manager for Luxury Operations about their use of SalesRX, my online retail sales training program…
“The program has helped the division increase Units per Transaction, increase average sale price and most importantly, increase sales by 108%. We are a timepiece company showing growth in a time when many people believe they do not need a watch to tell time because they have a cellphone. The SalesRX training helped our division excel within the fiscal year.”
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