Chapter Three: The Way We Were
It wasn’t always like this. Truth be told, there was a time in consumer electronics when integrity was a given in retail. A prospective customer walking into a store was met by a salesman who would show him or her the items on sale and offer to actually sell them. He would qualify the customer to see if that particular item met their needs and when appropriate would recommend either an alternative, or the necessary accessories to allow the item to deliver its maximum goal, or both. There was little need for pressure tactics or bait and switch techniques. The customer was respected and valued, and his repeat business was something not taken for granted.
Those of us who worked in what were commonly referred to as high-end audio salons relied more on a consultative approach to selling. In such establishments, the customer was treated to high performance and, yes, high-priced merchandise. Audio systems that cost tens of thousands of dollars and plasmas that cost as much as fifteen thousand dollars were considered the norm. Rare, indeed, was a substandard system that went out the door. Regardless of price, excellence was expected and delivered.
One of the ways in which salesmen built successful relationships with their clientele was to establish early on a rapport with the customer. One does not merely show off an elaborate and expensive system; one must build up a level of expectation – a wow factor if you will – that instills within the customer a desire to own such a system. Car companies like BMW and Porsche have had a long history of wooing potential customers with seductive ads that sweep them off their feet. Yes, their cars go fast and handle extremely well, but in the end, it is what the cars represent more than what they are that closes the deal. There is an old saying in sales, “You don't sell the steak, you sell the sizzle.” The customer is made to feel as though he must have this product. It is not rational; in deed very little about sales is rational. It is called benefit selling. Customers buy benefits not features. At some point in the transaction, if a customer feels the product brings a desired benefit to the table, he buys it; if not, he walks. This is not rocket science. It is the universal law that drives sales.
Picture a room with a love seat in the middle and a projection screen in front. Your customer enters the room and sits down in the seat. You hand him a remote and tell him to press a button on it. Within seconds the lights begin to dim and a movie appears on the screen, followed by the most majestic and enthralling soundtrack yet heard. It is better than any experience he has ever had at a movie theater. After a few minutes of being titillated you pause the movie and inform him that he too can have this same experience in the privacy of his own home. The issue now is no longer cost; it’s how long it will take to accomplish this feat. In the end you did very little selling. The art of the transaction was in your knowledge and preparation, not your tongue and cheek.
So what happened? Well, for one thing as the prices of these products began to fall in the middle of the last decade, they became, in essence less desirable. More and more middle of the road retailers got into the business and price began to drive the market. At some point in the process these items became nothing more than commonplace commodities. And as more retailers were able to afford to carry and display these products the consultative part of the transaction was dropped in favor of a more expedient bottom-line approach. Inexperienced salesmen who lacked the skill set to properly explain the differences between products began to appear in droves. Their only concern was getting you out the door with a box or boxes. The wow factor was supplanted by a cash or charge mindset. The sizzle was replaced by chuck steak. A relationship that took days to cultivate was now reduced to less than an hour. Prostitutes showed more interest in their Johns than most floor salesmen showed in their customers, and the customers knew it.
With little incentive at their disposal consumers became nothing more than shop-hoppers. The lowest bidder got the sale, pure and simple. Few, if any, bothered to remember their salesmen, since few, if any, salesmen remembered their customers. Items that only a few years ago cost almost as much as a new car were now virtually disposable commodities with little value beyond the immediate gratification of an impulse buy. Multi-thousand dollar audio systems were supplanted by home theaters in a box. Performance plummeted and overall customer satisfaction went south. When the same thing happened in the computer industry years ago, the only resellers that survived were the ones who took the time to maintain and strengthen relationships with their customers. The rest fell by the wayside. The same thing is happening to the home theater industry. The specialty shops are going out of business and the fast-food chains have taken over and are going full speed ahead off the cliff into oblivion.
The history of the fast-food electronics chains is an enigma. Some managed to eek out a modest existence and a few even flourished. Originally relegated to selling those products that the specialty shops considered beneath them, they even manage to carve out a niche for themselves. For the consumers who couldn’t afford the BMWs or the Porsches of home entertainment systems, they could still walk in and for a fraction of the price walk out with a pretty respectable system. Life was good for a time. Both the S-class crowd and the Chevy crowd got what they wanted. Consumers in both income brackets trusted that they were being treated fairly and that they had gotten good return on their investment.
Then slowly over the years a number of illegitimate retail chains began to erode that trust and engage in shameless acts that gradually began to take their toll on the market. Consumers began to feel wary of how they were being treated, walls went up and suspicions soared. What should’ve been a mutually beneficial transaction turned into a tug of war and a test of wills. To the winner went the spoils. The most infamous of these chains was an outfit called “Crazy Eddy.”
The bait and switch antics of this outfit were the stuff of legend. Few customers got what they came in for and most ended up being switched into a much more expensive product. The “art” of luring the customer into the slaughter house now became the established norm, for Crazy Eddy forced its competitors to adapt some if not many of its antics, just to stay competitive. While a few maintained their integrity and did their best to rough it out, most succumbed and joined the fray. The result was a growing cancer within the marketplace that to this day has done more damage than any single price plunge could ever have done. While Crazy Eddy has been gone for some time now, it’s legacy remains a testament as to just how low some companies can sink to make a buck.
Sunday, April 25, 2010
Thursday, February 18, 2010
Chapter Two: Burn Baby Burn!
The life of a salesman is not, contrary to what some might suggest, glamorous. The hours are long – during the holiday season the typical full-time salesman can expect to work from between 65 to 80 hours a week, and during the week before Christmas it’s a seven-day schedule from open to close, or roughly 100 plus hours. The conditions are exacting; between over-demanding managers who expect their staff to be flawless and consumers who expect to get everything they want for a song and a prayer, patience weighs thin and tempers fly. The families of these salesmen must endure extreme sacrifices as well while their loved ones work these grueling hours. For these people the holiday season is hardly a joyous time; in deed it is the closest thing they will find to hell on earth.
Consider the following. Standing on one’s feet for up to 12 to 16 hours per day, five, six, or perhaps seven days a week. On some days there aren’t that many customers who come into the store, and those few who do are coming in for the advertised products. It is not at all that unusual for the average salesman to go an hour without seeing a prospective customer walk in. For many in the business this is as good as it will ever get. After all the years of welcoming customers in to their stores and thanking them for shopping there, some have managed, if they are fortunate, to build up a steady stream of repeat business, which keeps them one step ahead of their colleagues.
Quite a life, isn't it? And yet with all they have to endure - the brutal schedules, the unsympathetic managers, the cantankerous customers, and the family members who still don't understand why they can't be home more, even after all these years - salesmen are still expected to do their jobs and turn a profit for their employers. To say it isn’t easy would be an understatement. In days long since passed, salesmen could steer customers toward more expensive products and more lucrative attachments with far greater ease. If you were buying a $5,000 plasma, what was a few hundred dollars of cable anyway? That ship sailed long ago. Today the the prices have plumeted and the differences between plasmas and LCDs are not as noticeable; consumers are far more hesitant to spend money they deem unnecessary simply to add an extra HDMI input or an extra 10,000 in contrast ratio. Trying to get customers to upgrade and spend more money is akin to trying to squeeze water out of a stone. Even the best salesmen are hard-pressed to succeed, and those who do are still making far less money than they did even a few years ago.
In the last chapter we saw how retailers lure their perspective customers into their stores with ads of inexpensive, loss leader models and then place those models next to “step up” models. They then turn their sales staff loose on the unsuspecting consumer to upsell them into a more profitable purchase. It is an art form, but even the best art can use a little assistance now and then; hence when the “tell” portion isn’t enough to convince the consumer, there’s nothing quite like a little “show” to speed things along.
You’ve heard of the phrase, “Good, Better, Best?” Well feast your eyes on this: “Burn, UG, Best.” Every showroom is merchandized carefully to show the “burn” piece – the one in the ad – next to its step up or UG (upgrade) model. And right next to that model is the “best” model. While there are legitimate differences between all three, retailers are not above “enhancing” those differences to steer the gullible towards at the very least the UG model. The contrast is turned down and the brightness is raised to make the picture look washed out and give the appearance that the advertised piece is inferior to the UG model. Conversely, the UG and best models are put in either “vivid” or “sports” modes to exaggerate their contrast levels and make them seem far more attractive. Some salesmen are not above fabricating "issues" with the burn models, referring to them as discontinued when in fact they are still current, or, in the case of plasmas, claiming they suffer from burn-in problems. Anything goes when trying to steer customers away from the loss leaders.
The irony is that without employing such shameless tactics, the differences would still be apparent to the naked eye, just not as obvious. But retailers are loath to take that chance, hence the helping hand of deception. The goal is to ensure that the perspective customer is successfully brought to the “correct” conclusion: that the upgrade is worth the extra money and the advertised piece would be a mistake to purchase.
But what about the more difficult customer who still won’t drink the Koolaid? After forcing him to look at the burn piece next to the UG models several times, and constant pressure tactics from the salesman, whose livelihood depends on the customer swallowing his malarkey, the chase for now is abandoned. Like it or not the customer is not going to go along with the program. He came in for the advertised piece and he intends to leave with it, or go somewhere else and buy it. And that is not permissible. No matter how reprehensible a retailer might be, at the end of the day low profit is still better than no profit. The customer cannot walk; the deal gets written.
Time to throw in the towel? Hardly. For now, the fun part starts. Having subjected him to ceaseless badgering on the merits of the superior model, the customer now gets to the register and has to endure the onslaught of the attachment phase. This is where the salesman begins the process of getting back the money he lost by selling the burn piece. This is where his revenge begins.
First up is the extended warranties. Assuming the customer has not been completely put off by the scurrilous antics of the salesman or become overly suspicious of the “doctored” pictures on the flat panels, he might be open to hearing about the warranty. Most, if not all, manufacturers include one year parts and labor on their sets, and a few even offer a second year on parts only. Most of these warranties do not cover trip charges to the home, meaning that it is up to the customer to bring the set in to an authorized service center. For that reason alone, the prospect of extending the warranty out to four or five years with in-home service is appealing to many consumers.
The problem is not need, but cost. Many extended warranties can cost as much as twenty percent of the cost of the LCD or plasma; in some instances, more. It is at this point that the salesman, in an attempt to rescue himself from the hole he has dug, tries yet another tactic that has brought many a black eye to an industry already bludgeoned by its own ineptitude. He first inflates the cost of the service contract, then inboards part if not all of it back into the purchase price, thus reducing the miniscule profit to nothing, just so he can make a commission on the one item that pays him the most. This is how it’s done.
Say a plasma that was advertised for $698, has a dead cost of $633. After repeated attempts to switch the customer over to a plasma that sells for $999 with a cost of $804 have failed, the salesman, knowing full well that he will not make much on the “profit” of the plasma, will then “negotiate” on the extended warranty. He will quote the price of the extended warranty for a more expensive set – the UG model – and then pretend that he is an advocate for the customer by promising he is going to work out a deal whereby the cost of extending the warranty will only be a few extra dollars. He quotes a price of $149 for a warranty he knows should only cost $99, and then backs out $50 from the burn piece to accommodate the customer. The receipt reads the plasma selling for $648 with the warranty costing $149. There are still some profit dollars left in the plasma, but the salesman has increased the profit of the transaction by $50 and hence his paycheck goes up.
Failing that, he then pretends to have a “discussion” with his manager then comes back and sells the correct warranty by saying he was able to get the manager to agree to lower the price of the warranty. The receipt thus reads the plasma selling for $698 and the warranty selling for $99. A wash? Hardly. The salesman does not get paid as much on the plasma as he does on the warranty, hence the push to inflate the warranty.
If all else fails and the customer is still balking at purchasing the extended warranty, the salesman will take part or all of the price of the warranty out of whatever profit remains on the TV. It is not unusual to see LCDs and plasmas going out the door below cost, so long as a warranty is included on the receipt. Such a receipt might look like this: $598 for the plasma and $99 for the extended warranty. The store lost money on the TV, but the salesman made a greater percentage of profit on the warranty. This is called inboarding: a time-honored tradition employed by many salesmen to increase their commission checks by defrauding even their own employers.
Salesmen often tell their customers they are giving them a “package” price and “including” the warranty at no extra charge. In point of fact, they are being charged for it. If it is on the receipt, you paid for it. Unlike the products on the shelf, extended warranty prices are set in stone and are not negotiable. When any salesman tells you he is giving you a “deal” on the extended warranty he is either lying outright or robbing from Peter to pay Paul. Not only do retailers know this is going on, it is actively encouraged within the industry. Many sales managers and, in deed, many store managers are paid bonuses based on the percentage of extended warranties their stores write. While they get paid on overall volume, attachment selling is how they make commission. And speaking of attachments, the best is saved for last.
With the customer raked over the coals over the upgrade model and taken for a ride on the extended warranty express, the sad truth is that the one attachment that could actually enhance the overall enjoyment of the plasma or LCD is left for last. Contrary to popular opinion, not all cables and surge suppressors are the same. Poor cables and cheap power strips can rob the customer of the performance he or she deserves out of their product. Whether it’s watching HD cable or satellite, or watching a Blu-ray DVD, a good HDMI cable is vital, as is the appropriate surge suppressor or line conditioner. Such attachments may seem like a waste of money, but out of all the extras that consumers purchase, none have more to say about the overall satisfaction. It is even more integral than purchasing an extended warranty or an upgrade model. And yet, thanks to the scandalous practices of many salesmen, by the time they get to cable and surge, the consumer’s patience and money have run out. Customers should expect to pay more for the right cable and surge suppressors. In some cases these two items can add as much as a couple hundred dollars to the overall price depending on the panel purchased. Unfortunately, because it is the last thing brought up during the transaction, customers end up walking out the door with inferior cables and little or no surge protection for their products. Shameful!
All of this in unnecessary. If only the industry would realize the futility of such practices, fire those salesmen who employ them, and be more transparent with their market, in all likelihood they would have more profitable sales and, along with that, more satisfied customers. But how does one overturn decades of sloppy and lazy salesmanship? It isn’t easy, but it is possible.
Some retailers have resorted to something unique. When they advertise a product – be it a loss leader or upgrade model – they do so by stating in the ad what other items are needed or recommended to enhance the overall performance, such as the appropriate cables and surge and an extended warranty. Perhaps a home theater system? When the perspective customer comes into the showroom to see the advertised piece, it is proudly displayed – with no attempt made at altering its performance, steering the customer away from it and without any salesman denigrating it – along with all the attachments recommended to enhance its performance. When upgrade suggestions are made, it is within the context of improving upon an already good product. The customer’s intelligence is not insulted; rather he or she is made to feel as though their choice is an informed one, instead of being forced upon them through avarice motives.
As I have mentioned, legitimate upselling is possible and vital to any consumer-based industry. But it takes more than just ruthless guile to accomplish it. Deliberately misleading consumers by denigrating the products they came in to purchase and then inflating the costs of warranties and minimizing true enhancement attachments is the main culprit here. The reason so many consumer-based groups have been so negative towards the consumer electronics industry is painfully obvious. To reverse this stigma will take a lot of effort, but it is effort worth spending.
The life of a salesman is not, contrary to what some might suggest, glamorous. The hours are long – during the holiday season the typical full-time salesman can expect to work from between 65 to 80 hours a week, and during the week before Christmas it’s a seven-day schedule from open to close, or roughly 100 plus hours. The conditions are exacting; between over-demanding managers who expect their staff to be flawless and consumers who expect to get everything they want for a song and a prayer, patience weighs thin and tempers fly. The families of these salesmen must endure extreme sacrifices as well while their loved ones work these grueling hours. For these people the holiday season is hardly a joyous time; in deed it is the closest thing they will find to hell on earth.
Consider the following. Standing on one’s feet for up to 12 to 16 hours per day, five, six, or perhaps seven days a week. On some days there aren’t that many customers who come into the store, and those few who do are coming in for the advertised products. It is not at all that unusual for the average salesman to go an hour without seeing a prospective customer walk in. For many in the business this is as good as it will ever get. After all the years of welcoming customers in to their stores and thanking them for shopping there, some have managed, if they are fortunate, to build up a steady stream of repeat business, which keeps them one step ahead of their colleagues.
Quite a life, isn't it? And yet with all they have to endure - the brutal schedules, the unsympathetic managers, the cantankerous customers, and the family members who still don't understand why they can't be home more, even after all these years - salesmen are still expected to do their jobs and turn a profit for their employers. To say it isn’t easy would be an understatement. In days long since passed, salesmen could steer customers toward more expensive products and more lucrative attachments with far greater ease. If you were buying a $5,000 plasma, what was a few hundred dollars of cable anyway? That ship sailed long ago. Today the the prices have plumeted and the differences between plasmas and LCDs are not as noticeable; consumers are far more hesitant to spend money they deem unnecessary simply to add an extra HDMI input or an extra 10,000 in contrast ratio. Trying to get customers to upgrade and spend more money is akin to trying to squeeze water out of a stone. Even the best salesmen are hard-pressed to succeed, and those who do are still making far less money than they did even a few years ago.
In the last chapter we saw how retailers lure their perspective customers into their stores with ads of inexpensive, loss leader models and then place those models next to “step up” models. They then turn their sales staff loose on the unsuspecting consumer to upsell them into a more profitable purchase. It is an art form, but even the best art can use a little assistance now and then; hence when the “tell” portion isn’t enough to convince the consumer, there’s nothing quite like a little “show” to speed things along.
You’ve heard of the phrase, “Good, Better, Best?” Well feast your eyes on this: “Burn, UG, Best.” Every showroom is merchandized carefully to show the “burn” piece – the one in the ad – next to its step up or UG (upgrade) model. And right next to that model is the “best” model. While there are legitimate differences between all three, retailers are not above “enhancing” those differences to steer the gullible towards at the very least the UG model. The contrast is turned down and the brightness is raised to make the picture look washed out and give the appearance that the advertised piece is inferior to the UG model. Conversely, the UG and best models are put in either “vivid” or “sports” modes to exaggerate their contrast levels and make them seem far more attractive. Some salesmen are not above fabricating "issues" with the burn models, referring to them as discontinued when in fact they are still current, or, in the case of plasmas, claiming they suffer from burn-in problems. Anything goes when trying to steer customers away from the loss leaders.
The irony is that without employing such shameless tactics, the differences would still be apparent to the naked eye, just not as obvious. But retailers are loath to take that chance, hence the helping hand of deception. The goal is to ensure that the perspective customer is successfully brought to the “correct” conclusion: that the upgrade is worth the extra money and the advertised piece would be a mistake to purchase.
But what about the more difficult customer who still won’t drink the Koolaid? After forcing him to look at the burn piece next to the UG models several times, and constant pressure tactics from the salesman, whose livelihood depends on the customer swallowing his malarkey, the chase for now is abandoned. Like it or not the customer is not going to go along with the program. He came in for the advertised piece and he intends to leave with it, or go somewhere else and buy it. And that is not permissible. No matter how reprehensible a retailer might be, at the end of the day low profit is still better than no profit. The customer cannot walk; the deal gets written.
Time to throw in the towel? Hardly. For now, the fun part starts. Having subjected him to ceaseless badgering on the merits of the superior model, the customer now gets to the register and has to endure the onslaught of the attachment phase. This is where the salesman begins the process of getting back the money he lost by selling the burn piece. This is where his revenge begins.
First up is the extended warranties. Assuming the customer has not been completely put off by the scurrilous antics of the salesman or become overly suspicious of the “doctored” pictures on the flat panels, he might be open to hearing about the warranty. Most, if not all, manufacturers include one year parts and labor on their sets, and a few even offer a second year on parts only. Most of these warranties do not cover trip charges to the home, meaning that it is up to the customer to bring the set in to an authorized service center. For that reason alone, the prospect of extending the warranty out to four or five years with in-home service is appealing to many consumers.
The problem is not need, but cost. Many extended warranties can cost as much as twenty percent of the cost of the LCD or plasma; in some instances, more. It is at this point that the salesman, in an attempt to rescue himself from the hole he has dug, tries yet another tactic that has brought many a black eye to an industry already bludgeoned by its own ineptitude. He first inflates the cost of the service contract, then inboards part if not all of it back into the purchase price, thus reducing the miniscule profit to nothing, just so he can make a commission on the one item that pays him the most. This is how it’s done.
Say a plasma that was advertised for $698, has a dead cost of $633. After repeated attempts to switch the customer over to a plasma that sells for $999 with a cost of $804 have failed, the salesman, knowing full well that he will not make much on the “profit” of the plasma, will then “negotiate” on the extended warranty. He will quote the price of the extended warranty for a more expensive set – the UG model – and then pretend that he is an advocate for the customer by promising he is going to work out a deal whereby the cost of extending the warranty will only be a few extra dollars. He quotes a price of $149 for a warranty he knows should only cost $99, and then backs out $50 from the burn piece to accommodate the customer. The receipt reads the plasma selling for $648 with the warranty costing $149. There are still some profit dollars left in the plasma, but the salesman has increased the profit of the transaction by $50 and hence his paycheck goes up.
Failing that, he then pretends to have a “discussion” with his manager then comes back and sells the correct warranty by saying he was able to get the manager to agree to lower the price of the warranty. The receipt thus reads the plasma selling for $698 and the warranty selling for $99. A wash? Hardly. The salesman does not get paid as much on the plasma as he does on the warranty, hence the push to inflate the warranty.
If all else fails and the customer is still balking at purchasing the extended warranty, the salesman will take part or all of the price of the warranty out of whatever profit remains on the TV. It is not unusual to see LCDs and plasmas going out the door below cost, so long as a warranty is included on the receipt. Such a receipt might look like this: $598 for the plasma and $99 for the extended warranty. The store lost money on the TV, but the salesman made a greater percentage of profit on the warranty. This is called inboarding: a time-honored tradition employed by many salesmen to increase their commission checks by defrauding even their own employers.
Salesmen often tell their customers they are giving them a “package” price and “including” the warranty at no extra charge. In point of fact, they are being charged for it. If it is on the receipt, you paid for it. Unlike the products on the shelf, extended warranty prices are set in stone and are not negotiable. When any salesman tells you he is giving you a “deal” on the extended warranty he is either lying outright or robbing from Peter to pay Paul. Not only do retailers know this is going on, it is actively encouraged within the industry. Many sales managers and, in deed, many store managers are paid bonuses based on the percentage of extended warranties their stores write. While they get paid on overall volume, attachment selling is how they make commission. And speaking of attachments, the best is saved for last.
With the customer raked over the coals over the upgrade model and taken for a ride on the extended warranty express, the sad truth is that the one attachment that could actually enhance the overall enjoyment of the plasma or LCD is left for last. Contrary to popular opinion, not all cables and surge suppressors are the same. Poor cables and cheap power strips can rob the customer of the performance he or she deserves out of their product. Whether it’s watching HD cable or satellite, or watching a Blu-ray DVD, a good HDMI cable is vital, as is the appropriate surge suppressor or line conditioner. Such attachments may seem like a waste of money, but out of all the extras that consumers purchase, none have more to say about the overall satisfaction. It is even more integral than purchasing an extended warranty or an upgrade model. And yet, thanks to the scandalous practices of many salesmen, by the time they get to cable and surge, the consumer’s patience and money have run out. Customers should expect to pay more for the right cable and surge suppressors. In some cases these two items can add as much as a couple hundred dollars to the overall price depending on the panel purchased. Unfortunately, because it is the last thing brought up during the transaction, customers end up walking out the door with inferior cables and little or no surge protection for their products. Shameful!
All of this in unnecessary. If only the industry would realize the futility of such practices, fire those salesmen who employ them, and be more transparent with their market, in all likelihood they would have more profitable sales and, along with that, more satisfied customers. But how does one overturn decades of sloppy and lazy salesmanship? It isn’t easy, but it is possible.
Some retailers have resorted to something unique. When they advertise a product – be it a loss leader or upgrade model – they do so by stating in the ad what other items are needed or recommended to enhance the overall performance, such as the appropriate cables and surge and an extended warranty. Perhaps a home theater system? When the perspective customer comes into the showroom to see the advertised piece, it is proudly displayed – with no attempt made at altering its performance, steering the customer away from it and without any salesman denigrating it – along with all the attachments recommended to enhance its performance. When upgrade suggestions are made, it is within the context of improving upon an already good product. The customer’s intelligence is not insulted; rather he or she is made to feel as though their choice is an informed one, instead of being forced upon them through avarice motives.
As I have mentioned, legitimate upselling is possible and vital to any consumer-based industry. But it takes more than just ruthless guile to accomplish it. Deliberately misleading consumers by denigrating the products they came in to purchase and then inflating the costs of warranties and minimizing true enhancement attachments is the main culprit here. The reason so many consumer-based groups have been so negative towards the consumer electronics industry is painfully obvious. To reverse this stigma will take a lot of effort, but it is effort worth spending.
Monday, December 7, 2009
Chapter One: Selling: It’s all about the profit!
Let’s start off by acknowledging the universal truth of all truths. Profit makes the world go round. No matter the country or economic system or market or product, if at the end of the day your profit doesn’t outweigh your expenses, you’re dead. Every retailer knows this. Profit good, loss bad. And the more money you charge for your product the more profit you are likely to keep.
That’s the good news. The bad news, however, is that waiting at the other end of that perfect formula is a consumer market that wants to spend as little as possible for your product. In their perfect world, paying less is the ultimate goal. For the better part of two centuries we have grappled with reconciling these two extremes.
The result has been the current and extremely dysfunctional retail world in which retailers lure customers into their stores with advertised low prices on bargain products and then attempt to extract from them the money required to make the profit needed to grow their businesses.
Every retail-based corporation from BMW to Walmart does this. The only way to get customers through your doors is to run sales. Whether it’s a 325i or a cheap flat panel LCD, deals are a part of the game, and the ones who run the most deals attract the most potential customers.
The bulk of these retailers’ budgets are devoted to the marketing departments who run the ads that produce the traffic on the showroom floor and the sales force whose job it is to turn the low-profit transaction into a lucrative one, without of course turning off and driving away the intended customers. It is a delicate and painstaking process. The same technique employed to get a customer to switch from a basic car to one that is fully loaded is the same technique used to switch him from a generic TV to a name-brand deluxe model. No BMW dealer ever wants a 328i to drive off the lot optionless, any more than a retailer wants last year’s Visio LCD to leave without a warranty, cables or surge. In a perfect world neither the customer nor the dealer are well served when this happens.
The trick is how get the customer to fork over the additional cash to purchase the needed options. It is easy to say the 328xi with all-wheel drive, built-in GPS, satellite radio, MP3 player and service support is better than the stripped-down 328i, just as it is easy to say the Panasonic TCP50V10 is far better than the basic TCP50C1. Now try and explain to the customer that the item they thought was going to cost “x” is now going to cost “x plus” without sounding like you work for a bait and switch outfit.
The problem lies both in perception and good old-fashioned consumerism. Few, if any consumer-based outlets lead with top shelf deluxe products. They may feature them occasionally in their weekly ads, but make no mistake about, at the end of the day the loss leaders or entry-level models garner most of the print. A simple look at the receipts from a Black Friday sale day is all one needs do to get a handle on how the public thinks. Consumers are driven by price, and they tend to flock to stores that have the most competitive prices. It’s that simple. For every customer who comes in looking for the very best product available there are more than a dozen who want the most for the least. Translation? Cheap is in and expensive is out. This is not rocket science. Every salesman knows it, as does his boss and his boss’s boss. Bring ‘em in low and get ‘em out high. That’s the game baby! The one’s who play it best survive; the ones who don’t go out of business.
So now that we know that it’s price that motivates the public to purchase, how do these retailers select the products that they advertise to bring in their customers. It’s important to know that virtually every retailer carries a plethora of product lines from entry level to top level. However they purchase products primarily on what they expect to move. Hence a retailer is likely to have in its inventory three to four times as many entry or mid-level product as top level. But as any first-year accounting major will tell you, inventory doesn’t pay bills, cash on hand does. So to move out this low to mid-level product, retailers will often sell them at or just over cost. The idea being that the “experienced” salesmen on the floor can “switch” some of the customers over to higher priced models, or accessorize the sale items sufficiently so as to make it a worth while transaction.
Ads that read “Limited Time Only” and “Lowest Priced Ever” and “While Supplies Last” are carefully placed so as to instill in the target market a sense of urgency. Never mind that the same models seem to be creeping up week after week with the same wording. Retailers know full well that most of the buying public does not carefully scrutinize the models, just the prices. The fact that a Columbus Day ad reads virtually identical to a Labor Day ad is superfluous and irrelevant. The whole idea is to get their attention long enough to bring them in and get them to buy from you and not your competitor.
But retailers are not stupid. They are not, contrary to the printed ad, giving away the store. The models they select to promote in their advertisements are carefully chosen so as to allow their salesforce the opportunity to step up to the higher-priced model. The Panasonic TCP50C1 may be marked at an incredibly low price, but it is not that far removed from, say the TCP50X1. Usually the difference in price is more than affordable to the customer. The same can be said of the TCP50U1. The upgrade, the TCP50S1, is within the financial reach of most customers. And so on and so on. Every loss leader is neatly placed next to its upgrade, which is, surprise, only “slightly” more expensive than the advertised piece. The customer is made to see the value of the “better” model in ways that make him or her seem stupid not to want to take advantage of the opportunity.
Now the sad truth is that in many instances the upgrade does have advantages that the lower-priced item does not have. The problem is that the customer was lured in under the pretenses that the advertised piece was the best value. The correct thing would be for the retailer to advertise the better model, but alas, the public is focused on price. It is a catch 22 situation that many responsible retailers are unable to extricate themselves from. How many potential customers would BMW get if they advertised a fully-loaded 328xi lease for $675 per month for 36 months with no money down and 15,000 miles per year? Not many, I dare say. Now what if you could get a stripped-down version of the 328i for $399 a month for 36 months? What a difference. Left out is the fine print that says that the mileage is 10,000 not 15,000; it’s an “i” instead of an “xi”, which means no all-wheel drive, and you have to pay a cap-cost reduction of $3,000 along with your first and last lease payment upfront. Not as attractive anymore is it?
The industry’s dirty little secret is that truth in advertising is an oxymoron. Nobody wants to say it and certainly nobody wants to hear it. It’s not whether retailers lie, or conveniently leave out “little” details, it’s whether they are successful at it. The painful reality is that all retailers have to live in a world where they must skirt the line between legitimate upselling and flat out bait and switch tactics. To be completely transparent means little or no traffic coming in to the showroom; to go the other way and engage in shameful conduct means earning the wrath of your customers who will inevitably find out what you’re up to and will bring their business elsewhere.
Let’s start off by acknowledging the universal truth of all truths. Profit makes the world go round. No matter the country or economic system or market or product, if at the end of the day your profit doesn’t outweigh your expenses, you’re dead. Every retailer knows this. Profit good, loss bad. And the more money you charge for your product the more profit you are likely to keep.
That’s the good news. The bad news, however, is that waiting at the other end of that perfect formula is a consumer market that wants to spend as little as possible for your product. In their perfect world, paying less is the ultimate goal. For the better part of two centuries we have grappled with reconciling these two extremes.
The result has been the current and extremely dysfunctional retail world in which retailers lure customers into their stores with advertised low prices on bargain products and then attempt to extract from them the money required to make the profit needed to grow their businesses.
Every retail-based corporation from BMW to Walmart does this. The only way to get customers through your doors is to run sales. Whether it’s a 325i or a cheap flat panel LCD, deals are a part of the game, and the ones who run the most deals attract the most potential customers.
The bulk of these retailers’ budgets are devoted to the marketing departments who run the ads that produce the traffic on the showroom floor and the sales force whose job it is to turn the low-profit transaction into a lucrative one, without of course turning off and driving away the intended customers. It is a delicate and painstaking process. The same technique employed to get a customer to switch from a basic car to one that is fully loaded is the same technique used to switch him from a generic TV to a name-brand deluxe model. No BMW dealer ever wants a 328i to drive off the lot optionless, any more than a retailer wants last year’s Visio LCD to leave without a warranty, cables or surge. In a perfect world neither the customer nor the dealer are well served when this happens.
The trick is how get the customer to fork over the additional cash to purchase the needed options. It is easy to say the 328xi with all-wheel drive, built-in GPS, satellite radio, MP3 player and service support is better than the stripped-down 328i, just as it is easy to say the Panasonic TCP50V10 is far better than the basic TCP50C1. Now try and explain to the customer that the item they thought was going to cost “x” is now going to cost “x plus” without sounding like you work for a bait and switch outfit.
The problem lies both in perception and good old-fashioned consumerism. Few, if any consumer-based outlets lead with top shelf deluxe products. They may feature them occasionally in their weekly ads, but make no mistake about, at the end of the day the loss leaders or entry-level models garner most of the print. A simple look at the receipts from a Black Friday sale day is all one needs do to get a handle on how the public thinks. Consumers are driven by price, and they tend to flock to stores that have the most competitive prices. It’s that simple. For every customer who comes in looking for the very best product available there are more than a dozen who want the most for the least. Translation? Cheap is in and expensive is out. This is not rocket science. Every salesman knows it, as does his boss and his boss’s boss. Bring ‘em in low and get ‘em out high. That’s the game baby! The one’s who play it best survive; the ones who don’t go out of business.
So now that we know that it’s price that motivates the public to purchase, how do these retailers select the products that they advertise to bring in their customers. It’s important to know that virtually every retailer carries a plethora of product lines from entry level to top level. However they purchase products primarily on what they expect to move. Hence a retailer is likely to have in its inventory three to four times as many entry or mid-level product as top level. But as any first-year accounting major will tell you, inventory doesn’t pay bills, cash on hand does. So to move out this low to mid-level product, retailers will often sell them at or just over cost. The idea being that the “experienced” salesmen on the floor can “switch” some of the customers over to higher priced models, or accessorize the sale items sufficiently so as to make it a worth while transaction.
Ads that read “Limited Time Only” and “Lowest Priced Ever” and “While Supplies Last” are carefully placed so as to instill in the target market a sense of urgency. Never mind that the same models seem to be creeping up week after week with the same wording. Retailers know full well that most of the buying public does not carefully scrutinize the models, just the prices. The fact that a Columbus Day ad reads virtually identical to a Labor Day ad is superfluous and irrelevant. The whole idea is to get their attention long enough to bring them in and get them to buy from you and not your competitor.
But retailers are not stupid. They are not, contrary to the printed ad, giving away the store. The models they select to promote in their advertisements are carefully chosen so as to allow their salesforce the opportunity to step up to the higher-priced model. The Panasonic TCP50C1 may be marked at an incredibly low price, but it is not that far removed from, say the TCP50X1. Usually the difference in price is more than affordable to the customer. The same can be said of the TCP50U1. The upgrade, the TCP50S1, is within the financial reach of most customers. And so on and so on. Every loss leader is neatly placed next to its upgrade, which is, surprise, only “slightly” more expensive than the advertised piece. The customer is made to see the value of the “better” model in ways that make him or her seem stupid not to want to take advantage of the opportunity.
Now the sad truth is that in many instances the upgrade does have advantages that the lower-priced item does not have. The problem is that the customer was lured in under the pretenses that the advertised piece was the best value. The correct thing would be for the retailer to advertise the better model, but alas, the public is focused on price. It is a catch 22 situation that many responsible retailers are unable to extricate themselves from. How many potential customers would BMW get if they advertised a fully-loaded 328xi lease for $675 per month for 36 months with no money down and 15,000 miles per year? Not many, I dare say. Now what if you could get a stripped-down version of the 328i for $399 a month for 36 months? What a difference. Left out is the fine print that says that the mileage is 10,000 not 15,000; it’s an “i” instead of an “xi”, which means no all-wheel drive, and you have to pay a cap-cost reduction of $3,000 along with your first and last lease payment upfront. Not as attractive anymore is it?
The industry’s dirty little secret is that truth in advertising is an oxymoron. Nobody wants to say it and certainly nobody wants to hear it. It’s not whether retailers lie, or conveniently leave out “little” details, it’s whether they are successful at it. The painful reality is that all retailers have to live in a world where they must skirt the line between legitimate upselling and flat out bait and switch tactics. To be completely transparent means little or no traffic coming in to the showroom; to go the other way and engage in shameful conduct means earning the wrath of your customers who will inevitably find out what you’re up to and will bring their business elsewhere.
Sunday, July 12, 2009
Sketch:
An Insider’s View Into the World of Retail.
What you don’t know is hurting you!
Introduction
In 1973, one of the best cop movies ever made – Serpico – was released. It told the story of Frank Serpico’s struggle to resist the corruption that was widespread in the New York City police department during the 1960s and early 1970s. Pushed by the distrust and threats of his fellow brethren, Serpico eventually went undercover to expose the corruption. As a result, he was an outcast.
Now before I go any further, I want to coin a phrase by a not so popular president and make one thing perfectly clear, I am no Frank Serpico. I will, thankfully, never know what it is like to be threatened by my fellow brethren. But make no mistake about it, this book will, I hope, shed much light into a series of practices that has brought much shame and disgrace upon the retail industry, and severely damaged its already fragile reputation with the consumer. Furthermore, my writing this book will draw much ire among many sales people who will no doubt see me as a turncoat and ingrate.
I assure you I could care less about their opinion of me. For this book is NOT for them. No doubt many of them may find it a bit harder to make a living after what I hope is a plethora of consumers flocking to read these pages. Good riddance to bad rubbish, I say, and don’t let the door hit you on the way out! But my real aim here is to restore to those who toil in quiet frustration a sense of dignity and recognition for the tremendous obstacles they must overcome to make an honest living, and to both warn the consumer of the tactics being employed and to reassure them that not everyone in retail is a snake oil salesman.
I will also point out, before my detractors do, that I am by no means an angel. I have been guilty of employing some of these tactics myself. I do not walk on water, nor do I claim to, but like Treat Williams in “Prince of the City” I simply got fed up with what was going on and decided to purge my soul. In essence this book is as much about me, as it is about those thousands of brave hearts who not only have to overcome the objections of their customers, but who have to contend with the reprehensible tactics of their fellow associates and the wrath of their employers who could care less about the integrity of the industry they so fervently claim to defend.
While I have primarily worked in the consumer electronics field, selling everything from computers to flat-panel TV’s to home theater systems, this crap is going on in every field out there. The auto industry, I’m sure, is loaded with it, as is the insurance and banking industries. Where ever there is a profit to be made, I can assure you these tactics are being employed in some manner. For our purposes, I will limit the scope of the exposé to my own field, specifically flat-panels and home theaters.
What about the title of the book? What is a sketch? I picked the title carefully because that is what we do in sales: we sketch the customer. We basically smear the product we don’t want to sell and prop up the product we do want to sell. When a salesperson is sketching he or she simply makes up stuff about the various products, hoping the customers are too naïve to know the difference. For the most part, they are. Sadly, the consumer’s ignorance has been the biggest culprit in this scheme. Salespeople are trained to speak in the simplest of ways, avoiding techno-babble and making very generic statements. The hope is that by not getting specific, the customer will be less confused and more apt to buy.
Now some of this is legitimate. Many years ago I was taught that consumers do not buy features they buy benefits. So it is up to a well-trained salesperson to “keep it simple.” But keeping it simple doesn’t mean lying, and that is what so many of these thieves do. When faced with a choice between playing it straight and building a lasting relationship with the customer, they choose the quick strike and defraud them into making a purchase of an item that is not as good as the one they came in for, or an item that might be just as good, but costs more and makes the salesperson a bigger commission. Most of these customers eventually figure out they’ve been taken and the result is a loss of any future business; but the damage is done and the reputation of all is tarnished.
So my response is to say, Enough! Enough sketching, enough deceit! Upselling is a legitimate means of making a living in this country that countless honest salespeople employ on a daily basis. It is the art of taking ten dollars and turning it into twenty by selling value added products like accessories and products with better specs. But that is not what these people are doing. They are taking advantage of the gullible and selling them snake oil and calling it hair tonic. These people and the companies that employ them cannot rot in hell fast enough. And my hope is that this book will accelerate the process a bit. In my religion there is a saying. You reap what you sow. The day of reckoning for these individuals is at hand and I couldn’t be more delighted in helping them along to their final destination.
This book will look at several tactics in depth. First among them will be explaining how retailers lure unsuspecting customers into their stores with ads for loss leaders. These are items with little or no profit value – salespeople refer to them as “Burns” because selling them is like getting burned. Some of these products are truly putrid in that they are not very good at any price; others, however, are viable products whose prices have simply been slashed to attract potential buyers. The only thing wrong with them is that the salesperson gets little or no commission for selling them. Next we will look at how these retailers display and set up these products in a manner so as to convey a false impression in the consumer’s mind. Burns are made to look inferior to the more profitable or “UG” models. So before the salesperson ever says a word, the customer already believes that the “sale” item isn’t very good. This process is truly an art form and it needs to be done just right in order to be effective. Finally, the Pièce de résistance. Having run the mis-leading ads, rigged the products to look worse than they are, the salespeople are now turned loose upon the unsuspecting customer to lie through their teeth to make whatever living they can, all with the knowledge and encouragement of their employers. If they cannot turn the customer away from the burn they will charge exorbitant amounts of money on other items such as extended warranties, cable and stands. There are any number of opportunities to recoup lost profit on loss leaders, some of which are legitimate, but sadly many of which aren’t. I will highlight the illegitimate ones.
But I would be remiss if I did not give the customer his fair share of scorn. The simple and plain truth is that there is an unrealistic expectation within the consumer market that you can get something of value for next to nothing. The opposite is in fact true. More often than not, consumers who shop on the cheap get what they pay for in the end. We, all of us, have enabled a certain segment of this market to go right along believing this lie, in the naïve hope that we can recoup the profit by either “switching” them into a better product or by selling them extended warranties by preying on their worst fears: namely that they cannot afford to replace the product they just purchased. If these customers would simply save a bit more and a bit longer they’d be able to afford to purchase a better product. The old saying “There’s a sucker born every minute” is in deed true and the retail world counts on him passing through its’ doors.
Critics of this book will say I am only an embittered salesman who couldn’t hack it on the sales floor and is just getting back at my comrades because I am jealous of their success. Nothing could be farther from the truth. While I am angry, the cause of my consternation is based solely on the deplorable nature of such conduct combined with a burning desire to rid the retail community of these scourges who are making it more and more difficult for legitimate salespeople to succeed in sales. What these individuals do is no different than an investment banker ripping off his clients in a Ponzi scheme. While ripping someone off for an extra couple hundred dollars may not seem as bad as defrauding an investor of millions of their retirement dollars, it is important to note that these practices are widespread and in all likelihood result in far greater losses to the economy. I fervently believe that the consumer market is losing millions of dollars annually from these deceptive practices.
I also pledge to work with any and all consumer-protection agencies, which should be fully investigating these scandalous retailers and their low-life employees. If this book in any way leads to a general house cleaning that brings about greater regulation and enforcement of unethical practices in this industry, I will be pleased to no end; if even one customer is alerted to such practices and benefits by avoiding such establishments that employ them, I will consider my work done.
Let the bloodletting begin.
An Insider’s View Into the World of Retail.
What you don’t know is hurting you!
Introduction
In 1973, one of the best cop movies ever made – Serpico – was released. It told the story of Frank Serpico’s struggle to resist the corruption that was widespread in the New York City police department during the 1960s and early 1970s. Pushed by the distrust and threats of his fellow brethren, Serpico eventually went undercover to expose the corruption. As a result, he was an outcast.
Now before I go any further, I want to coin a phrase by a not so popular president and make one thing perfectly clear, I am no Frank Serpico. I will, thankfully, never know what it is like to be threatened by my fellow brethren. But make no mistake about it, this book will, I hope, shed much light into a series of practices that has brought much shame and disgrace upon the retail industry, and severely damaged its already fragile reputation with the consumer. Furthermore, my writing this book will draw much ire among many sales people who will no doubt see me as a turncoat and ingrate.
I assure you I could care less about their opinion of me. For this book is NOT for them. No doubt many of them may find it a bit harder to make a living after what I hope is a plethora of consumers flocking to read these pages. Good riddance to bad rubbish, I say, and don’t let the door hit you on the way out! But my real aim here is to restore to those who toil in quiet frustration a sense of dignity and recognition for the tremendous obstacles they must overcome to make an honest living, and to both warn the consumer of the tactics being employed and to reassure them that not everyone in retail is a snake oil salesman.
I will also point out, before my detractors do, that I am by no means an angel. I have been guilty of employing some of these tactics myself. I do not walk on water, nor do I claim to, but like Treat Williams in “Prince of the City” I simply got fed up with what was going on and decided to purge my soul. In essence this book is as much about me, as it is about those thousands of brave hearts who not only have to overcome the objections of their customers, but who have to contend with the reprehensible tactics of their fellow associates and the wrath of their employers who could care less about the integrity of the industry they so fervently claim to defend.
While I have primarily worked in the consumer electronics field, selling everything from computers to flat-panel TV’s to home theater systems, this crap is going on in every field out there. The auto industry, I’m sure, is loaded with it, as is the insurance and banking industries. Where ever there is a profit to be made, I can assure you these tactics are being employed in some manner. For our purposes, I will limit the scope of the exposé to my own field, specifically flat-panels and home theaters.
What about the title of the book? What is a sketch? I picked the title carefully because that is what we do in sales: we sketch the customer. We basically smear the product we don’t want to sell and prop up the product we do want to sell. When a salesperson is sketching he or she simply makes up stuff about the various products, hoping the customers are too naïve to know the difference. For the most part, they are. Sadly, the consumer’s ignorance has been the biggest culprit in this scheme. Salespeople are trained to speak in the simplest of ways, avoiding techno-babble and making very generic statements. The hope is that by not getting specific, the customer will be less confused and more apt to buy.
Now some of this is legitimate. Many years ago I was taught that consumers do not buy features they buy benefits. So it is up to a well-trained salesperson to “keep it simple.” But keeping it simple doesn’t mean lying, and that is what so many of these thieves do. When faced with a choice between playing it straight and building a lasting relationship with the customer, they choose the quick strike and defraud them into making a purchase of an item that is not as good as the one they came in for, or an item that might be just as good, but costs more and makes the salesperson a bigger commission. Most of these customers eventually figure out they’ve been taken and the result is a loss of any future business; but the damage is done and the reputation of all is tarnished.
So my response is to say, Enough! Enough sketching, enough deceit! Upselling is a legitimate means of making a living in this country that countless honest salespeople employ on a daily basis. It is the art of taking ten dollars and turning it into twenty by selling value added products like accessories and products with better specs. But that is not what these people are doing. They are taking advantage of the gullible and selling them snake oil and calling it hair tonic. These people and the companies that employ them cannot rot in hell fast enough. And my hope is that this book will accelerate the process a bit. In my religion there is a saying. You reap what you sow. The day of reckoning for these individuals is at hand and I couldn’t be more delighted in helping them along to their final destination.
This book will look at several tactics in depth. First among them will be explaining how retailers lure unsuspecting customers into their stores with ads for loss leaders. These are items with little or no profit value – salespeople refer to them as “Burns” because selling them is like getting burned. Some of these products are truly putrid in that they are not very good at any price; others, however, are viable products whose prices have simply been slashed to attract potential buyers. The only thing wrong with them is that the salesperson gets little or no commission for selling them. Next we will look at how these retailers display and set up these products in a manner so as to convey a false impression in the consumer’s mind. Burns are made to look inferior to the more profitable or “UG” models. So before the salesperson ever says a word, the customer already believes that the “sale” item isn’t very good. This process is truly an art form and it needs to be done just right in order to be effective. Finally, the Pièce de résistance. Having run the mis-leading ads, rigged the products to look worse than they are, the salespeople are now turned loose upon the unsuspecting customer to lie through their teeth to make whatever living they can, all with the knowledge and encouragement of their employers. If they cannot turn the customer away from the burn they will charge exorbitant amounts of money on other items such as extended warranties, cable and stands. There are any number of opportunities to recoup lost profit on loss leaders, some of which are legitimate, but sadly many of which aren’t. I will highlight the illegitimate ones.
But I would be remiss if I did not give the customer his fair share of scorn. The simple and plain truth is that there is an unrealistic expectation within the consumer market that you can get something of value for next to nothing. The opposite is in fact true. More often than not, consumers who shop on the cheap get what they pay for in the end. We, all of us, have enabled a certain segment of this market to go right along believing this lie, in the naïve hope that we can recoup the profit by either “switching” them into a better product or by selling them extended warranties by preying on their worst fears: namely that they cannot afford to replace the product they just purchased. If these customers would simply save a bit more and a bit longer they’d be able to afford to purchase a better product. The old saying “There’s a sucker born every minute” is in deed true and the retail world counts on him passing through its’ doors.
Critics of this book will say I am only an embittered salesman who couldn’t hack it on the sales floor and is just getting back at my comrades because I am jealous of their success. Nothing could be farther from the truth. While I am angry, the cause of my consternation is based solely on the deplorable nature of such conduct combined with a burning desire to rid the retail community of these scourges who are making it more and more difficult for legitimate salespeople to succeed in sales. What these individuals do is no different than an investment banker ripping off his clients in a Ponzi scheme. While ripping someone off for an extra couple hundred dollars may not seem as bad as defrauding an investor of millions of their retirement dollars, it is important to note that these practices are widespread and in all likelihood result in far greater losses to the economy. I fervently believe that the consumer market is losing millions of dollars annually from these deceptive practices.
I also pledge to work with any and all consumer-protection agencies, which should be fully investigating these scandalous retailers and their low-life employees. If this book in any way leads to a general house cleaning that brings about greater regulation and enforcement of unethical practices in this industry, I will be pleased to no end; if even one customer is alerted to such practices and benefits by avoiding such establishments that employ them, I will consider my work done.
Let the bloodletting begin.
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