Rafi Mohammed

Want a Great Holiday Season? Help Your Customers…

Posted on November 4th, 2008 (3 Comments)

A friend of mine recently had to undertake expensive dental work and was choosing between two well-respected Boston dentists. “Which one did you choose,” I later asked. Her response was illuminating. “The one with the payment plan,” she mumbled. My friend’s experience highlights a key point that’s going to be relevant this holiday season: customers may love your product and even be okay with your price…but they need your help fitting purchases into their budget.

The electronics retail industry is brutal. Competitors like Best Buy, Circuit City, and Radio Shack are slugging out (usually via price discounts) to win customers. Early handicappers have Best Buy winning the race (Circuit City announced today that it’ll close 20% of its stores by the end of the year). So what’s Best Buy’s secret strategy? Many believe it’s the financing the retailer offers. Best Buy offers 18 months interest free financing for purchases over $499. This simple financing plan is bringing in droves of customers. Consider the effects of its no interest plan (which in Q1 was for purchases over $999) had on Q1/08 earnings. In Best Buy’s earnings call, EVP Mike Vitelli stated “We believe what resulted were higher sales, market share gains, and some consumers literally adding items to their shopping cart so they could hit the $999 minimum purchase.”

Remember layaway plans? Miguel Bustillo of the Wall Street Journal recently wrote a great article about how this selling practice is making a comeback. Layaway involves a retailer putting aside merchandise and then allowing customers to make regular payments. Once the full price is paid, the customer takes the item home. Here’s how important retailers believe “help your customer” plans like layaway are for this holiday season. Kmart has made its layaway plan the centerpiece of its national advertising campaign. The company’s chief marketing officer commented: “while not sexy, layaway became the big idea for Kmart these holidays.”

Given our economic turmoil, everyone is concerned about holiday sales this year. That said, consumers are going to spend. Instead of being drawn into a dangerous price war, my advice is to gain a competitive edge by offering customers what they really need…help fitting purchases made from your store into their budgets.

On another note, I’m pleased to have passed the half way point on my new pricing book that will be published in 2009. With these core chapters complete, I’ve been hitting the road to present my ideas to companies and welcoming their critical feedback. I’d love to present my new ideas to the pricing enthusiasts in your company. Please contact me for an early preview of my new perspective on pricing for profits and growth.

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Readers' Comments on This Blog Entry

From Steve on November 4th, 2008
Perfect timing. About 5 weeks ago I got my letter from the Tacoma Rainiers asking me for a renewal of my season tickets. My wife and I discussed the idea of not getting them and using the money to go to an extra 10-15 Mariner games (through Stub Hub). In the end we renewed, but only after I had gone to the team and asked that they spread my credit card payment over 4 months so it was more like a water and power bill. Once they agreed, I renewed. The guy actually called me back to thank me and let me know that they had gotten some other people over the renewal hump by offering the same payment spread. "We now realize that we can't expect individuals and businesses to pony up a big check right in the middle of the meltdown. People are taking a second and third look at discretionary spending, and we need to do things to soften the impact". Cool, huh?
From Ivana Taylor on November 6th, 2008
Fabulous article Rafi! Can't wait for the book. I'd love to see a list of creative pricing strategies to use in this economy. I just read an article that your customers will remember you for the way you treat them when times are tough - and this seems like a great strategy to use - per your post.
From Susan on November 7th, 2008
This article shows what can be done to help people in these hard times. When I was a kid & my mom was trying to raise my 2 brothers & I, KMart was the answer for many things we needed to buy because of their layaway plan. If more stores would offer this service, I think it would help their business while helping their customers out, too!