Whenever I think about crazy business ideas that succeed, I remind myself of the brave individuals who raise their hands when the boss asks for “new ideas.” One of these nameless heroes is the executive who thought it would be a good idea to put cafés into bookstores. Imagine telling a Vice President of Operations or a Sales Director at a large bookstore chain that you think it’s a good idea to make it easy for customers to enjoy your books and magazines without actually having to buy them. It's nuts! But of course, nearly 20 years later it turns out those cafés were a brilliant idea which not only improved book sales, but also opened the path to new high-margin coffee and food revenues.
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, BJ’s and Sam’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 customers’ 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 aren’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 hasn’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 isn’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 won’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. This isn’t new. As far back as 1969, the Journal of Marketing Research was publishing studies that proved this point.
Proceed With Caution
These counterintuitive strategies have worked for numerous companies of all sizes and they can certainly work for yours as well. But putting them into practice requires significant preparation to ensure that your industry and your customer base are both good fits for implementing these methods.
Have you ever implemented a counterintuitive strategy in your business? Did it work out? What did you learn?
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