Give Them What They Want for Less

In this economy, I hear business people more than ever agonize over price.

“My clients can’t afford it.”
“Customers just aren’t spending.”
“The only way that I will get business is to drop my price.”

While I maintain that price is never the number one reason that people buy, I agree that everyone has limited financial resources. Customers’ perception of tough economic times prompts them to delay or completely withhold purchases. They still have the same wants, but they may choose to act on those wants differently than they would in a vibrant economy.

The guitar company, C. F. Martin, faced this dilemma. For over a hundred and seventy-five years, C. F. Martin has been crafting guitars which have been played by hall of fame musicians as well as ordinary people who love to play a good guitar. These guitars were not cheap. The lowest-priced one was two thousand dollars. In this economy, that was a hefty sum for the average person to pay for a luxury item. Consequently, Martin’s sales were down.

With the option of closing a plant and/or laying off hundreds of their skilled craftsmen, Martin turned to what the current Martin’s grandfather had done during the Great Depression when he encountered a similar situation. They made a new guitar. This guitar is a stripped-down, plain, simple model with no lacquers, no inlaids, and no laminates, but it is still a very well-made Martin guitar, crafted with skill. Named the One Series, these guitars sell for hundreds, not thousands, of dollars. So far this year nine thousand of these guitars have been sold.

By creating this new guitar, C. F. Martin reacted to customers’ wants and the current economic conditions. Customers still want a C. F. Martin guitar. However, in these economic conditions, customers have difficulty justifying a two thousand dollar guitar purchase.

C.F. Martin could not drop the price of the two thousand dollar guitar to accommodate its customers. Instead, Martin created an entirely new guitar which filled the bill.

This action is vastly different than what most businesses do in similar situations. Most business people think that they must drop price, even if that means that the business does not make money, just to prompt the customer to buy. The business focuses on revenue instead of cash flow. If the price does not cover the cost of the good or service and include some sort of profit, the sale does not cash flow. Sure, cash is flowing, but it is flowing in a negative direction because the business is taking in less than the cost of the good or service. Eventually, this negative cash flow leaves the business without enough revenue to cover its costs. What is the point of that?

The point of having a business is to make profit so that the business can survive and thrive. In order to do that, a business must have cash flow. To achieve cash flow, a business must sell the goods or services for more than they cost. Selling goods and services for more than they cost may require creating a good or service that the customer wants and will buy. Offering this good or service may require some thought. This thought takes more effort than slashing a price.

This thought gives customers what they want for less and maintains cash flow for the business.

What new offer can you make which gives your customer what he wants and cash flows for your business?