Do Your Customers Fight Like Cats and Dogs?

by Dr Greg Chapman, MBA

One of the most popular articles I have ever written was Are Your Customers Cats or Dogs? In it I warned that businesses can have both Feline (High Value Customers) and Canine (Budget Customers) but you need to ensure that you keep them apart. After all, we know what happens when you put Cats and Dogs together. (I am talking about market segmentation!)

If your segmentation is poor, you find that your customers are looking over the fences and seeing that the grass appears greener on the other side. Perhaps your budget offer might appeal to the customers you previously thought to be premium.

In market segmentation, I often like to compare Qantas and Jetstar. Both, of course are owned by the same company, but one is cheap and cheerful, and the other is focused to the business traveller. While the business traveller is still cost conscious, they want reliability and flexibility. Jetstar does not offer this, with delays far more frequent.

However, within Qantas you have a choice of classes, within which the Jetstar vs Qantas reliability does not exist. Whether you are at the front of the plane or the back of the plane, you arrive at the same time, even though it may take you a bit longer before you are at the taxi rank.

For international flights, this becomes even more difficult to justify in the difference between Business and First Class especially since fierce with competition Business today, is as good as First ten years ago (the margins were very high). About the only reason you would fly First internationally today is because you can’t afford your own private jet (Loser!).

So now we see Qantas is dramatically reducing its first class offer. As a result of competition, the segmentation between First and Business has collapsed and companies find it harder to justify the premium for First except for the very top executives.

How does this relate to small business owners, who are still weighing up the cost of Jetstar vs back of the plane Qantas? In fact it does not just apply to small business.

There was a situation where there was a confrontation between the Australian Government and Bonds on closing down an Australian plant because high union rates of pay had made them unprofitable, and they transferred their production offshore. There was an awkward situation when the minister and the CEO where on the same plane. However, there was no meltdown on the plane, as the minister was seated in first class and the CEO was travelling economy. (Your taxes at work.)

For small business, the message is that if you have both Feline and Canine customers, that they can’t look over the fence. While you have competitors, it is unlikely to be as ruthless as the international aviation industry which is highly subsidised and dysfunctional.

So you can offer both Premium and Economy services, just as long as you can keep the cats and dogs apart.

May Your Business Be - As You Plan It.

Over to You. What do You Think? Post Your Comments Below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success.

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Breaking the Link between Cost and Price

by Dr Greg Chapman, MBA

Businesses often use simple formulas to calculate their prices. Usually based on some on some mark-up, so in a store all items might be priced with a 60% mark-up on cost with the 60% covering wages, overhead, and hopefully profit.

In a businesses where prices are easy to compare, this practice is rife, but for more complex services or businesses which package their products in ways that can’t be compared, this restraint need no longer apply.

Many years ago in Melbourne, I heard Kevin Dennis, the used car king, being interviewed about how he started in the auto industry when he left school. He always had a passion for cars, and had the opportunity to be interviewed by the principal of two different car dealerships for a job. One was a new car retailer, and the other was a used car dealer.

He found out where they lived and saw that the used car dealer was far wealthier than the principal of the more prestigious new car business. Which is why he went into used cars.

New cars are commodities. Used cars have histories that make them difficult to compare and value, and so the margins are far higher. The used car dealer also gets to bargain twice, when buying and when selling. Quite often a new car dealer can make more money from the trade-in at their associated used car lot than they can from the new car where margins are fixed.

Pricing on value also depends on being able to sell to those who value the utility of the product rather than the cost of supplying it. This is beautifully illustrated in the video below (caution some mildly strong language).



While this is of course exaggerated, a similar shop in a less wealthy area with the items poorly presented would not be making the margins of the store in this video. Environment, presentation and packaging are all important elements in the establishment of value.

These are just some of the steps to take to break the link between cost and price.

May Your Business Be - As You Plan It.

Over to You. What do You Think? Post Your Comments Below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success.

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How Do You Charge Your Customers?

by Dr Greg Chapman, MBA

We had just finished a meal at a restaurant, which while quite reasonable, was not otherwise memorable. The bill came to a little over $100. I would have normally left a tip of around 10%.

As we were on holidays I wanted to preserve my cash, so I offered to pay by credit card. It was then I was informed, that yes they did accept credit cards, but there would be an extra 1.5% charge added to the bill.

This restaurant was in a resort area (in Australia), and none of the other establishment we had visited had charged extra for credit cards. For them it was just seen as a cost of doing business, with a recognition that people were more likely to buy something if they did not have to pay cash.

As someone ‘in the game’ I like to look at what is done well, and what is not. If it is done well, I like to recognise it, if not, I like to recognise it.

So I made the point that I would have been happy to have paid a 10% tip, but since they were slapping a 1.5% charge on the bill that no other restaurant did, I did not think any further additions were necessary. So they lost 8.5% by trying to recover 1.5%.

These sort of imposts just annoy customers, especially if you are the only one doing it. Phone companies can do this as all their competitors do it, and their margins are nowhere near the size of those of a restaurant and savings on credit card costs are a significant bottom line addition for them. Further, they offer many other payment options other than just cash. Phone companies even charge you for sending you their invoices, because that is the standard. This leaves the field open to a company that offers a service with no extra charges as a point of difference!

For the restaurant, the equation is different. Do they think that they will save more money by applying this charge than they might lose by turning off customers? If they were concerned about the 1.5% credit card charge, why not just put up their prices by 1.5%? Do you really think that someone would cross the street to another restaurant because their prices were 1.5% dearer? Could they even tell, given that the menu was unlikely to be similar enough to compare prices?

At a restaurant, the meal is meant to be an experience. As you leave in good humour, and perhaps a little light headed after a glass or two of wine, you don’t want to affect the tip because you appearing to be cheap (particularly if your average bill is around $100).

Personally, I am happy to take most credit cards in my business, even Amex with its 3% fees! I want it to be as easy as possible for clients to pay me. (As an aside, I used to accept Diners Club, but only 1 person in 3 years ever used the facility, but boy was he excited to find someone who actually took the card. Perhaps I should have charged extra!) I believe these charges are a small price to pay to complete the sale.

Costs are always important in any business, but the way you charge can affect your image almost as much as what you charge.

May Your Business Be - As You Plan It.

Over to You. What do You Think? Post Your Comments Below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success.

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