Two Unexpected Paths to Small Business Growth
Over at OPENForum, Mike Periu, a Principal at EcoFin mediaÂ writes:
Using counterintuitive strategies in your business can be risky, but when they work the rewards can be enormous. Trying these methods can help you improve sales and profits:
Warehouse stores like Costco, BJâ€™s and Samâ€™s Club are very careful with their inventory management and go to great lengths to avoid shrinkage, which is a fancy way to refer to theft. One of the strategies they use is to have an employee cross check customersâ€™ receipts with the items in their cart before they are permitted to leave the store. If you buy a large cooler (like I did last week) at a warehouse store they will make you open it to confirm that you arenâ€™t trying to steal a 25 pound sack of sugar before permitting you to leave. I was upset because it could send the message that they are suspicious of any customer.
But I am in the minority.
Over 50 million people shop at warehouse stores every year, spending billions of dollars per week without any concern for this policy. It hasnâ€™t hurt sales and has indeed curbed shrinkage. According to Brad Ferris, President of Triage Capital Management, Costco has the lowest inventory losses in the retail industry with just 0.2% lost every year. Compare this to Wal-Mart which loses 1.6% of its inventory to shrinkage, an 800% difference.
Many small business owners automatically assume that lowering prices is a great way to attract more customers and improve sales especially during tough times. But it isnâ€™t always the case. By lowering your prices, you hurt your margins which significantly hurt your profitability. The customers that come and buy just because you are offering a deal wonâ€™t come back if you decide to raise prices later. In fact, you have to lower your prices again just to keep them coming back. It could turn into a death spiral.
Why not raise your prices instead?
Customers tend to use price as a signal for determining the quality of a product or service and many consumers will rather pay the higher price for the implicit promise of getting more or better product for the extra money.Â This isnâ€™t new. As far back as 1969, theÂ Journal of Marketing ResearchÂ was publishing studies that proved this point.
Nonetheless, Periu advises: Â Proceed with caution. Â Read the whole thing here.Â
Raising Prices is One Way to Drive Business Growth