Talon Company

Harvard Business Review: Invest in your brand...not price promotions!

talon — Fri, 10 Aug 2007 01:21:00 GMT

A recent article in the Harvard Business Review had this to say: “Our research into the role of marketing strategy in brand performance indicates that companies are paying too much attention to short-term data and not enough to the long-term health of their brands. They routinely overinvest in price promotions and underinvest in advertising, new-product development, and new forms of distribution.” (1.) Now retail thrifts are not well-known for new-product development but most everything else in this HBR citing had an application for us. And whereas this article is chocked full of good information, there is one especially-meaty point I want to focus on for a few minutes.

Here’s what it is—sales promotions may not supply the big bang thrift retailers think they do. Admittedly, sales promotion revenues provide a powerful lure to repeat promotions but a careful study of shopper behavior suggests that over time, a strategy of heavy utilization will actually decrease profit margins. “Shoppers aren’t naïve; regular sales promotions encourage them to wait for the next sale rather than purchase a product at full price.” (2) In short, sales promotions may drive spiked revenue streams, but there is little evidence to suggest a positive effect on total sales over time. The article goes on to say that the total impact of discounts is only 80% of their short-term effect. To say it another way, the effects measured over the long-term are 20% less positive that they first appear. By contrast, the long-term effect of advertising can be 60% greater than its short-term impact.

So what do we do with this information? I guess it might be this. In the rush to increase your revenues, don’t develop an over reliance on sales promotions—especially if any level of predictability to the sales. Shoppers will learn the pattern . . . and shop it. Over the long haul, your revenue baseline will not appreciably increase. A better practice might be to invest more heavily in getting shoppers to come to your store then, impress them with the quality of your brand. Retail thrift shoppers already expect low cost items: that’s why they shop you. Why not limit sales but impress your customers with the total experience. Have fun!

Leonard M. Lodish and Carl F. Mela, “If Brands Are Built over Years, Why Are They Managed over Quarters? Harvard Business Review, (July –August2007) p.105
Ibid, p 108

Margin AND Mission

talon — Wed, 08 Aug 2007 02:11:00 GMT

He had been with us only a short time when one of my vice presidents exclaimed, “Mission requires margin!” Though most of us in management have probably heard this tidbit of wisdom, I for one, had never heard it expressed so succinctly. To accomplish mission . . . you have to have margin. You cannot long do what you cannot sustain. It’s really that simple.

Not too long ago, net profit was not a desirable end in the services sector. Profit suggested that an agency’s powers that be could have done a better job channeling dollars to programs. If the goal was to provide for the general good, then every available dollar should be channeled to that end. If one spoke of having money left over at the end of a fiscal period, one had better of studied his or her audience first. Making a profit was not a badge of distinction.

Which may account for one of the principal challenges facing nearly every retail thrift with which I am acquainted, namely, “Is it first and foremost a business, or a service?” In the context of our phrase, “Is your store first and foremost a mission, or is its purpose to provide a margin?” I propose that how you answer that question matters greatly to the ease with which you can attain your objective.

Here’s why. In the world of the service sector, the highest use of a dollar is to produce a social good. In other words, a dollar is not an end of itself; it is a means to achieving a public good. If, for example, your goal is to provide inexpensive goods to low income shoppers, every decision you make is made through the filtering question of, “Will this action provide better goods at lower prices for needy shoppers?” not “Will this action yield more net profit?” Your objective is to provide a service, and whether there’s a profit in the process is clearly secondary. On the good side, your offering may thus be available to folks who might otherwise not be able to access. On the bad side, your retail thrift may become another drain on your agency’s revenue allotment, and the offering of itself, will have to compete for those scarce dollars.

There is an alternative. I propose that retail thrifts may see their highest value as producing a net profit—not a social good. The direct goal, therefore, is not better goods at lower prices for needy shoppers, but rather, best net profitability from goods marketed to needy shoppers. Now before you regard me as a wasted interruption on your day, consider this. Net profit can only be achieved when the total price of goods sold exceeds the total cost of the offering. Net profit sustained is when the total price of goods sold exceeds the total cost of the offering over the long haul. In retailing, long haul profitability implies that an ongoing customer need is being met in a manner which drives loyalty. Customer loyalty presumes that all the best practices of retailing are delivered to your shoppers—who just happen to “need” this social good. It’s all the best features of a free market society applied to the treasures of retail thrift.

Engage Their Senses

talon — Tue, 07 Aug 2007 02:41:00 GMT

The next time you are visiting your favorite apparel store, smell! That’s right, stop what you’re doing and take a long sniff. Notice anything of interest? Chances are you’ll discover a distinct smell. Whether you have noticed it before or not, that smell is part of the store’s distinct brand, and it is part of the brand cocktail that brings you back to the store time and again. I might even go so far as to speculate that if you were led blindfolded to the store, you would be able to identify where you were based solely on what the sense of smell told you.

Sensory marketing is a way of describing the form and function of marketing which has as its goal to create awareness and influence consumer behavior via the various sensory channels to the decision center, i.e. the brain. Whereas I mentioned only the sense of smell, there is also sight, taste, touch, and hearing. Sensory marketing seeks to influence consumer buying behavior through each. One of my favorite retail stores, for example, encourages the shopper to “Please touch.” When I do, I buy. The more senses a retailer can engage, the more likely a consumer is to make a purchase.

Thrift retailers are not exempt from the benefits of sensory marketing. Done properly and as part of your store’s distinct brand, the customer can be fully engaged upon entry. Remember, however, that marketing effectively via the senses is purposive. It does not just happen. What emotion or memory do you want to evoke with smell? Will any aspect of your offering be complemented by a particular scent? What about sound? Will what the customer hears in your store benefit his or her purchasing choices? What about sight? Taste? One way or another, you do have an identifiable brand. Why not make it one that will increase your sales. Brand evokes emotions, and emotions—when wrapped around your products—build customer loyalty.

So tell me, how’s your brand identity?

Sales Clerks: Can you afford to have more?

talon — Thu, 02 Aug 2007 03:08:00 GMT

Quick – For every dollar of gross revenue, what do you pay in wages? This number should be at the finger tip of every thrift retailer. In their book, Start and Run a Retail Business, James E. Dion and Ted Topping suggest that if your sales associates are actively engaged in selling on the floor, sixteen percent (16%) is acceptable. If not actively pushing goods to shoppers, that number drops to about eight percent (8%). In a finding specific to nonprofit thrifts, the National Association of Retail Thrifts (NARTS) reported that whereas store ratios varied by dollar volume, square footage, and years in operation, the average percent of gross sales spent on wages ranged from forty-three percent (43%) for stores with less than $200,000 in annual sales to about thirty-two percent (32%) for those with sales greater than $400,000 annually. (Operating Survey 2005).

Whatever your wages to gross revenues percentage is, it is important that you know this key retail indicator and understand its application. This is powerful information at your fingertips. For example, you’re considering whether to add another staff person to your sales floor ($18,000 wages) but would like first to determine the potential revenue impact of doing so. You know already that wages are thirty-five percent (35%) of current gross revenues and expect this sales associate to function in the same way as your others. With those assumptions, here’s how you get your answer.

$18,000 = 0.35 X
X = $18,000/0.35
X = $51,429 (Expected Gross Sales Impact)

You can do this for any wage or ratio by following the same process. Now that’s good information . . . and it will benefit you time and again if used properly. Finally, let me say that being continuously of your wages to gross revenue percentage will keep an important reality squarely in front of you, i.e. that the purpose of a sales associate is to produce revenue. Do your sales associates know that? Are they actively engaged in selling on the floor? Are you training them to be more effective at doing so? Do you track and post individual performances, daily? A shrinking wages to gross revenue number means more dollars are available for developing your store and if yours is nonprofit, more dollars that can be redirected to cash-starved programs.

(So, how do you compare? Email me--I’d love to hear from you. Please be sure to note whether you are a for-profit thrift, or nonprofit.)

Moment of Truth

talon — Wed, 01 Aug 2007 03:29:00 GMT

When you stop to think about it, a “Moment of Truth” is really just that. It’s when a customer comes into contact with your store (or business) and experiences your level of quality. In short, it’s “pull back the pretenses” time. It’s the moment of truth—who we really are to our customers. If we are brutally honest with ourselves, it can also be the foundation on which we build quality offerings for those who shop our stores.

Here are some things you need to know about moments of truth.

They start long before customers even pass through your doors. For example, does your building say quality to passers-by? Has the grass been mowed? Recently? Is there litter anywhere? Are the windows displays fresh and inviting? For that matter, are the windows clean? Does the exterior entice customers to shop with you?
There are many moments of truth. Literally, a moment of truth is any point of contact with your store that affects how a customer sees you. Here are just a few:

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Entry
Displays
Cleanliness
Signage. Handwritten signs are never acceptable for communicating quality.
Staff interaction with customers
Staff interaction with each other
Ease and quickness of checkout
Problem resolution

Moments of truth can vary by publics and demographics. For example, your mailman may never get past the first few feet of your entryway but will the moments of truth he experiences tell him that yours is a quality operation? How will the various moments of truth affect the senior shopper? Do you understand the needs of seniors enough that you can individualize your store to the needs of seniors? For that matter, how do male shoppers experience the quality of your offering? How do female shoppers see it? Understanding your various publics can be tough, but very rewarding work.
Moments of truth are not always directly influenced. They are often 2^nd, 3^rd, or 4^th generational in impact. The mailman might never have shopped your store, but he might have told his neighbor, who in turn told his daughter.

Now here’s a practical suggestion—and it can be as much fun as informative: assume various “perspectives,” then shop your store. For example, if you are not physically disabled, sit in a wheel chair to shop. Start outside as even your entryway might be seen from a new perspective. Carry a squirming child to see how quality is communicated to the young mother. You get the idea. Every perspective needs to be “WOW’d” differently if we are to communicate a “shopper-first focus.” Then again, isn’t that what we are all about?

Good luck!

Net? How Gross!

talon — Sun, 29 Jul 2007 17:43:00 GMT

I don’t usually position myself to overhear conversations, but recently I did so. Two managers were discussing their store performances and I wanted to hear what they said. Both were excitedly exchanging percentages of sales growth and speaking of the bonuses they were sure to get at the year’s end. That’s when I moved in for a bit more of the conversation. What I heard surprised me—sort of.

You need to know at this point that I expected to hear these managers speaking in excited tones as they talked about sales. Both ran successful businesses and both managers had attractive, well-run stores. What surprised me as their conversation continued was that neither manager said anything about the net—they spoke only of the gross. And judging from their years with their respective stores, their optimism for a bonus was probably warranted. After a bit more time to satisfy myself that I was getting the full picture, I wandered away, neither lady aware (hopefully) that I had conducted a little research while they spoke.

Here’s my finding, and it’s a simple one I’ll admit: Gross sales are sexy . . . but if you focus on them, you’ll do so at your own peril. Gross sales point to a store’s performance, but it’s the net that determines whether you’ll be in business tomorrow. It is not what you bring-in that matters, it’s what you get to keep. Go ahead--celebrate a great return! Just be careful to remember that a great return is only half the picture. Amazing how many do not.

Welcome and Hello!

talon — Thu, 26 Jul 2007 04:02:00 GMT

Welcome to the Talon Company blog. If you’ve been searching for an exciting and dynamic site to exchange ideas surrounding the business side of Retail Thrift stores you’ve come to the right place.

Many retail thrift blogs and websites focus on the shopping side of retail thrift. These sites spotlight the fun and excitement of finding that "special item" you've been looking for like a first edition a book or designer clothes that are "just your size". Thrift store shopping is fun no doubt about it. At Talon Company we spotlight the fun and excitement of thrift stores from a different perspective.

Our passion at Talon Company is to provide nonprofits the tools and expertise to start, and develop, a profitable and expanding retail thrift enterprise.

A business owner must have a plethora of skills and talents including retail sales, human resources, finance, marketing and customer service. If the business is a retail thrift store you better have knowledge and skill in nonprofit management, board of directors, fundraising, social enterprise, volunteers, additional tax laws, and different forms of government regulation. Knoweldge in these and other areas are critcial to the ultimate success of a retail thrift. Sounds daunting--we know. But never fear, these topics (and more) is exactly what we discuss here. Our passion and excitement for nonprofit retail thrift and nonprofit management can be a significant resource for you and your thrift enterprise.

If your nonprofit agency is already operating a retail thrift store or you’re thinking about starting one we invite you to actively browse our blog. Be sure to come back often as we are constantly putting up new content. Don't be afraid to jump right in and add to the discussion or ask questions-- we'd love to hear from you.

Thanks again for stopping by!!