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Why it’s never really too expensive

In 1992 Gerald Ratner was fired from the huge jewellery empire he had built up over many years. Ouch, fired! Fired from his own business by the incoming new Chief Executive. It may seem a bit harsh, being kicked out of what is essentially your own life’s work but there’s no doubt he deserved it. In an ill-judged speech he made to the Institute of Directors at the Royal Albert Hall, he described the products for sale in his stores as ‘Total crap’. The comment wiped £500 million off the value of the company, which as costly mistakes go must be among the costliest on a £ per word basis. The understandable investor reaction to his incredible corporate insight was enough to end his career.

Gerald wasn’t referring to all the products in all of his stores and he said was making an attempt at being funny (eh?) which painfully proves a quote I quite like; trouble usually starts out as fun (although that’s an awful lot of trouble for a miniscule bit of fun).

It’s obvious to all and sundry that it was a silly thing to say, common-sense even, but for a great many other less obvious reasons he ought to have said the items in question were simply ‘good’. Okay, he’d lose the laughter at that point in his speech because he’d say, “We also do cut-glass sherry decanters complete with six glasses on a silver-plated tray that your butler can serve you drinks on, all for £4.95. People say, “How can you sell for such a low price?” I say…” (thinks, ‘not total crap, not total crap’) ““Because it’s good!”” – pause for laugh – silence, tumble weed etc, emit embarrassed cough and tiny trumpet of gas, then move on, somewhat deflated because no one thinks you’re funny but instead remain as the grande fromage of a huge international retail kingdom, hooray!

Not only should he have said his products were good from a common-sense perspective, but in acknowledgement of established retailing terminology. It is common, best practice to categorise products as Good, Better or Best in retailing, giving people three options between which they can choose their ideal. You enter a store to shop for… absolutely anything, but for the sake of example, we’ll say a sofa. The store stocks a number of brands and can offer you a choice of three grades in a variety of upholsteries. It may not be obvious but there will be a best seller (the ‘Better’ product), a budget alternative for the cash-conscious (‘Good’) and a higher-end, luxury choice (‘Best’).

Three is a bit of a magic number for human beings and it’s not unnatural for Goldilocks to prefer Mummy Bear’s porridge as most of us are more ready, more inclined to pick the middle option than either of the others, most of the time. Not too cheap, not too expensive, something in the middle appeals to the largest audience.

That’s fine for Tesco selling Everyday items, their regular products and Tesco Finest which neatly fits the Good/Better/Best model but how does this take into account market positioning? What if your company deliberately aims for the lower-price end of the market as Ratners did, or the high-end like Burberry for instance, albeit with a different product line. Well the same applies, each manufacturer will typically have a range of offerings which provide a choice and several (three?) price points. The best Hi-Fi manufacturers rarely make one product line and instead offer choices so you can buy top-end gear from the elite end of the market but still choose between Top-End-Good/Top-End-Better/Top-End-Best. It’s so logical, natural and comfortable, it rarely registers with us. Pick your wine from the rear of the menu, pick your clothing store on the High Street, pick the spec of your new car from the glossy brochure, it’s generally a similar choice of more basic, super-duper and happy-medium-middle.

So we understand that in Good/Better/Best model, Better sells in the greatest quantities. Next comes Best. This is achieved by upselling from Better and requires either good point of sale material or the help of an expert salesperson able to justify the difference in price between the two, ideally both. Last comes Good, the cheaper, economy option. It’s all pretty simple in principle but can get very sophisticated in its detail.

What does it mean if the normal relationship – the balance – between the two shifts? What if the retailer begins to sell more and more Good stuff rather than Better? It may indicate that the market is shifting downwards in price as happened in food retailing after the last financial crisis, benefitting Lidl and Aldi and causing Tesco, Asda, Sainsbury and Morrisons to suffer reductions in their business. Maybe though, the lack of mid-range business is because point of sale materials are failing to do their job, or it’s the fault of the salespeople or perhaps the price points themselves, the level at which the products are priced in their market, maybe they simply don’t work anymore.

What if it’s Best that’s selling in increasing quantities? Do you have great salespeople or fabulously convincing POS materials or is the market shifting upwards? You do your market research, design your products and dive into the market place and then low and behold, it shifts and leaves you, hands on hips with cheeks puffed out wondering where your sales went. Yeah well, apparently things change. Richard Flint says, “The market never dies, it just moves”, so the question is, are you paying attention? And the next question is, can you move with it or will it leave you behind wondering what happened to your business? Of course those clever so-and-sos who can anticipate where the market is going or invent a new market entirely have a head start.

An Irish race-horse owner enjoying a winning streak with his finest thoroughbred, spent a season answering the enquiries from the press by proudly explaining, “This is the fastest horse this world has ever known.” It became a mantra, race win after race win, “This is the fastest horse this world has ever known.” And then it all ended, the unbroken winning streak was over and the once-unbeatable horse was outpaced by a relative newcomer. Then another, then another, finishing further and further downfield until it was obvious it would never win again. The owner, so used to saying “This is the fastest horse this world has ever known,” was asked what happened. After a short pause and with a shrug of the shoulders he declared “This is the fastest world this horse has ever known.”

One interesting change in some markets is that in recent times, many companies have experienced growth at the top end of their product ranges. The Best products in their range have been selling in larger quantities than expected, and in cases where it has been possible, buyers have been upgrading and customising them to make them better still. Old price ceilings have evaporated or skyrocketed as a growing number of people have demonstrated a willingness to spend rather a lot on the nicest of nice things. Expansion of sales has occurred to a greater extent at the high end than in the middle or lower sectors, or sometimes at the expense of the lower or middle sectors. Companies who have positioned themselves to serve the higher-end markets have been happy to find their customer base is largely immune from the echoes of a recession that not only didn’t hit them, but may have (perversely) benefitted them. As the economy slowly recovers, sales patterns are not necessarily returning to pre-2007 levels but taking on new shapes which are fatter at the top. Retailers who were unwilling to pursue the upward trajectory with stock, facilities and expertise have sometimes found that once loyal customers drifted away to the high-fallutin’ and shiny emporiums which were. “No one ‘round here can afford one of those” may have been the words from the chairman that eventually sealed the retailer’s fate.

Price points and the quantity of sales at each level not only provide a useful thermometer for what’s going on in the local market but also, where the retailer sits among the competition in the perceptions of the potential buyers. This means that just because the market can support high-value sales it doesn’t guarantee the buying public recognise a particular business as the place to go for that type of product at that price level. If they are missing out on high-end growth it might be time for the retailer to reinvent their image.

That’s a brief and cursory summary of something that’s been happening for some lucky manufacturers and retailers and while there’s more to say than we have space for here instead I’d like to turn our attention to salespeople for a while. Their role in presenting and explaining the product is crucial. What they do via the sales process is raise the customer’s desire for ownership and that desire in turn, negates price concerns. A thing is only too expensive until someone really wants it, then it makes financial sense to the buyer. Conversely then, if people don’t think a thing is worth its price, it’s obvious that desire isn’t high enough otherwise they wouldn’t feel that way. Consequently there can be no customer comment of “It’s too expensive” without the salesperson also hearing, “My desire for ownership simply isn’t high enough” (to justify the price).

What does the salesperson do to raise desire? We call it selling and that topic cannot be adequately summarised by a few paragraphs although we can touch on a few key points.

Flawless product knowledge builds confidence in the salesperson making presentations more credible and hopefully more relevant. Ideally, this knowledge should extend into the products and services of the competition. Salespeople rarely become experts for professional reasons alone though as cramming the huge mass of ever-changing information requires considerable application. It is made easier by far by having a genuine interest in the business; the kind of interest which demonstrates the salesperson actually likes what he or she is doing for a living and that if it wasn’t for the fact that they worked in this particular industry, they’d still be hungrily consuming the trade journals and product brochures. I can feel a quote coming on:

“You never achieve real success until you enjoy what you are doing.”
Dale Carnegie

The salespersons’ interest is better described as a passion and it is this heart-felt belief and exuberance which positively affects the customers they talk to more than the detail and data conveyed within it. Strong, congruent beliefs made a huge difference. Passion over small things out-trumps big things delivered indifferently.

So, good presentations are delivered with enthusiasm and punctuated with honest, accurate facts. The information shared during the presentation includes all the relevant information which the salesperson has a duty to provide plus further, specific elements carefully selected to raise the customer’s desire. Because the salesperson cannot possibly tell the customer everything, they tell them what they need to know to make an informed decision (to use a well-worn sales cliché). These pieces of information and explanation often take the form of picture painting. Many salespeople describe selling as painting pictures and putting the customer in the picture. Within these linguistic constructions are all the feature-advantage-benefit models which are the stuff of basic sales training and do a great deal to help people make buying decisions.

Regardless of the price of the product (or service for that matter), there’s someone out there willing to pay, sometimes a lot. For some people basic attributes at the lowest possible price remain paramount. For the largest number, a good balance of higher-level qualities and features which offer direct benefits to their imagined usage, albeit at a higher price form the best compromise. Meanwhile, for a growing minority, spending more and having something close to the very best available is the goal. Those who aspire to have better are increasingly joining those who have already arrived at the top in acquiring high-end products. This prompts manufacturers to make even better ones at even higher prices and as soon as they have done so, old price ceilings are smashed and new ones set. Maybe we shouldn’t be so surprised when it happens. It’s just a reflection of a small shift in retailing in the last decade. And if you’re paying attention you’ll notice there are a lot of people out there with a lot of money to spend.

In February of 2015 the painting When will you marry by Paul Gauguin fetched $300 million at auction and set a new record for a painting. Is anything worth $300 million? Sure it is, if you have the funds and want it enough.