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BUSINESS BASICS CHANNELS 
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Online
Pricing - Is your business online, completely offline or somewhere in between the two? Whatever you do, it is being affected by online prices. A real revolution in how business gets done has been happening on the Internet. Last year, as big-buck dotcom retailers struggled to gain market share without making a profit, smaller businesses that make money were at a disadvantage. The average retail discount available online was 15%. Whew! Even the big guys lost money in a big way as low prices, free shipping and the sales tax advantages eroded profit margins for everyone. Then came the crash of the Nasdaq market in April, which put a squeeze on fragile dotcoms had planned on losing money until they were just bigger than anyone else. VCs and angel investors realized that the window had slammed shut on fast-growing, money-losing business models. Has that improved things for the small business owner? Not really. There is still fierce competition for online sales and the discount has shrunk a tiny bit, from 15% last year to 13% now. However, the free shipping that had gone with low prices is harder to find. According to a May 2, 2000 report by Forrester Research, "Pricing Gets Personal", shopping agents, those little bots that hunt for the best price on a product or pop up to offer a better deal when an order is placed, and shoppers looking for good deals will make it important for businesses to keep their prices low. To do that and be successful means small businesses must find ways to reduce their costs. Customers are willing to pay a little bit more for service and availability but their loyalty can fade when the price difference creeps up. Forrester suggests personalized pricing as a solution to this problem. What is personalized pricing? It is one of the two things that recently got Amazon into public relations trouble. And it just may be an opportunity for the small business owner to shine. Amazon admitted selling DVDs and CDs at higher prices to their best customers, the ones who had made several purchases from Amazon in electronic equipment, DVDs and CDs. Amazon declared, after it made the press, that it was a test and all differences had been credited to their customers. Right now, most small businesses cannot afford the cost of customized software and data mining experts to set different prices based on a customer's past buying behavior and price/time sensitivity. Forrester states that big companies will be doing this-my guess is that a number of them already are trying it out. What does that mean to you? Your customers value their money, their time and immediate product availability. Forrester says that customers will shop in one of three ways. "Price grabbers want bargains and are willing to comparison-shop until deals are found, express shoppers want hassle-free buying and ignore prices in exchange for convenience, price and convenience take a back seat with affinity buyers, whose buying decisions revolve around lifestyle." The retailers Forrester surveyed are paying attention: 57% plan to offer multiple prices for the same item and 71% of that group expects that they will offer better prices for regular customers. How does that work for your business? In general, listen to your customers. Even if you are completely online, make sure that they can make comments with their purchases, comments that will be reviewed by a real person. Customers will tell you what they want if you ask them. What do they value? Is it selection, availability, price, customer service or something else? What do they want you to sell them? The deep pockets companies will be sharing information with other companies to find out more about each individual customer and making offers to the customer based on that information. The small business owner should also do comparison shopping. Those same bots that drive margins down can be your friends in finding out who your competitors are and what products and prices they offer. Of course, if you have a physical store, you will want to shop your local competition as well. You can get some great ideas on product placement and in-store promotion from those visits. Know what you do better than anyone else! If you provide great service and your customers want hassle-free shopping, you can have happy customers without offering the greatest price available. Doing this well means that you need to tell your customers about your great service, rather than hoping they will discover it on their own. If your customers want selection, that can be key to your success. This month's Smithsonian Magazine has an article on Jungle Jim's International Farmers Market, which offers the greatest selection of exotic foods in the U.S. They are located a half hour north of Cincinnati, near strip malls and car dealerships. Customers drive hundreds of miles to shop there. If you build it - and it is something that they want - they will come. Note: your promotion had better be effective. Uncounted are the great small restaurants that went out of business because customers did not know that they existed. If your key to success is low pricing, you have got to squeeze out all of the costs that you can. Otherwise, like many dotcoms, the old joke applies: Question:
How can you stay in business when you lose a dollar for every unit
you sell? Knowing your customers, and being able to contact them online via email with offers that you think they will find irresistible, can boost your profits and drive your advertising costs lower. Even without sophisticated software, you can observe what your customers want. Do they enjoy a great sale? Do you have something they are going to want, such as a shipment of Sony Playstation 2s coming in before Christmas? Tell them about it, build their trust and reliance on your business, and prepare to profit while many of the big businesses have trouble executing their personalized pricing plans because they are too complicated and time consuming. -Cynthia Nemeth-Johannes |
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