Customer service expert Martin Grunstein says sell an intangible concept instead of a product or service.
Margins in most industries are eroding. Some quite markedly. Fifteen years ago the retail margin on computer hardware was close to 50%, today it is less than 10%. Fifteen years ago real estate sales people were getting at least 3% commission on the sale of a property, today it is 2% if they are lucky. In ten years it will probably be 1%. In many industries I can buy goods online that retailers would have to sell at a loss if they were to match price.Why is this happening and what can be done to arrest the decline?The “why” is simple and is self-inflicted. The “how to arrest the decline” is also simple and is within the ability of each of us.
The reason margins have eroded is because players in each affected industry have commoditised their offer and made price the only differentiator in their marketing. Take the travel industry. Years ago we would go to the travel agent and discuss the excitement and possibilities of our future overseas trip. The discussion would be on the experiences and adventures we might have and the consultant’s advice would play a big part in the decision we made. Today, it is all about cheap airfares on the internet and we don’t seek the advice of the travel consultant because tripadvisor.com gives us information which is more powerful – feedback from other travellers, and we make our decisions accordingly.
What about the car industry? Almost every car dealer advertises they will match the price of any competitive offer. It used to be that Ford’s biggest competitor was Holden, now a Ford dealer’s biggest competitor is another Ford dealer and a Toyota dealer’s biggest competitor is another Toyota dealer because the car has become a “commodity”. How is that affecting the industry? Thirty years ago a car dealership was a hugely profitable business and many multi-millionaires were made from selling cars. Today, the sons of those multi-millionaire car dealers have taken over the business and struggle to service their mortgage because there is little profitability in selling cars these days. I was at a conference of a major motor vehicle company and they announced to the dealer principals in the room that dealer profitability on new cars nationally for the whole brand was half of one percent.There are many, many other examples of industries that have given their margins away and are now blaming the consumer for being price-preoccupied and complaining that they can’t make any money.
The more interesting question is how can this decline be arrested and what can business people do to get the margin back into their business?I have a simple answer to this dilemma that I have seen clever companies use in their businesses. I use it in my business and you can use it in yours. You need to sell an intangible and not a commodity. People will pay more for an intangible than they will for a commodity, even if the product concerned is identical.
Let me give you several examples. Crimsafe is a company that sells security screen doors and it has quite a few competitors. About five years ago they ran one of the best radio advertising campaigns I have ever heard. The voiceover said something like “Imagine what it would be like if someone broke into your house and hurt the people you love the most”. There was a pause so the listener could imagine something terrible happening to their loved ones. Then the voiceover continued “Crimsafe”. Makers of the best security screen doors in Australia”. And sales skyrocketed. Why? Because Crimsafe stopped selling screen doors which are a commodity and started selling fear which is an intangible. And people will pay much more to avert their fear than they will pay for screen doors.
What intangible does the expensive nursing home sell to the children of the prospective resident of that home, knowing that the costs of looking after that resident will come from the children’s future inheritance? Imagine the salesperson from the nursing home saying “After all your mother/father has done for you, don’t you think they deserve the best of everything in their final years?” They are selling guilt. And guilt sells!I have a friend who is a retired wedding photographer. His fees were usually up to 50% higher than his nearest competitor. His strategy which had a 90% conversion rate? After he presented the father of the prospective bride with the quote (which usually led to a jaw dropping), he looked him in the eye while the mother of the bride and the future bride, herself, looked on, and he said “Do you love your daughter enough to have the best of everything on the most important day of her life?” And then he just paused and waited for the reply which was yes in over 90% of cases. You can make much more money selling GUILT than you can selling photography.
What we must do as salespeople who value our margins, is get focus on the result rather than the product/service. What are you doing in your industry? Are you selling a commodity or an intangible?
Indulge my humorous side for a moment. Here’s how a retail shopping centre would look if retailers sold intangibles instead of commodities. The jeweller wouldn’t have “50% off” in the window, he/she would have a sign that says “Men are you taking your relationship for granted? Buy your partner some jewellery before someone else does and you lose her forever.” .The optometrist wouldn’t have “Buy one get one free” in the window he/she would have: “Thinking of getting married? Come in for an eye test. You might change your mind?” The pet shop wouldn’t have “Puppies half price”, it would have: “Parents. If you don't buy your children a pet, they will remember it forever and they may not do everything they can for you when you are old and depend on them.”
Obviously, I am being facetious with the above examples but if they were the type of signs in the window rather than “SALE” or “50% OFF” which seems to dominate the retail landscape, don’t you think the retailers’ margins may be a bit better than they are? My challenge to those of you who are in industries whose margins have eroded is to shift focus. If you take the two industries I quoted at the start of this article, if real estate agents were selling stress management to vendors, then commissions may go back to 3% instead of down to 1% where they are heading at the moment. Other computer companies should learn from Apple who got out of the computer industry years ago and got into the entertainment industry which is much harder to put a value on.
Martin Grunstein’s outstanding results with over 500 Australian companies across over 100 industries has made him this country’s most in-demand speaker on customer service. He is contactable on 0414933249 or through his website.