Education

The Price of Promotion

July 5, 2004 | By: deaneparkes

I have had the good fortune of working with companies in most areas of our industry, as a retailer, distributor and manufacture. It is well understood that every business requires margin/profit dollars to sustain and grow. A challenge many businesses face is the erosion of their margin to a point where they have become very challenged in having resources left to grow their business. Unless a company can create more new consumers for their product their business will have difficulties growing and perhaps even surviving.

Two keys to any business success: #1 create new customers, # 2 satisfy your current customer needs. Ignore either and you could be in for tough times.

Our ‘nemesis’ the pharmaceutical industry has long understood the need to retain strong margins and the need to create new customers. The following 2 points make this very clear:

# 1 – A recent survey of USA top selling prescription drugs showed margins ranging between 3000% – 225000% [thank you Diana Wells for this info]. No it is not a typo 225,000 % margin [Prozac]. Now take our industry where within any of the areas I have worked margins range between 15 – 60%. A far cry from our ‘real’ competition.

As an aside I was just in USA and headlines were all around the drug companies ‘needing’ to increase prescription prices.

# 2 – The marketing budget alone of the drug companies is 50% greater than the total retail sales for every vitamin, mineral, or herbal product sold in the United States through any channel of trade. [Thank you Dr. Michael Murray for this info].  This is staggering and shows why, even though the drugs they sell are in the top 3 killers of North Americans, they keep growing and growing. Remember the real high point for the need for therapeutic health products is 5-10 years away.

I do not want to go into big strategy around this subject, only to say we may want to consider when we are all out going after bigger discounts the discount has to come from somewhere and it usually comes out of the sales and marketing budgets which in the long term hinders our potential to create new customers, satisfy their needs and grow our industry.

Sell with Emotion:

As Neurologist Donald Calne puts it, the essential difference between reason (logic) and emotion is that reason leads to conclusions while emotion leads to actions. [Thanks to  Fred Hagadorn [now Rheece Hartte] for this].

Price vs Service

Whether in retail or as a supplier the biggest issue with their customers is price. This was proven through an extensive survey of various salespeople.

When consumers were asked what their biggest issue was it was service.

You do the math……..

A final note on price:

When you lead with price and lower your prices and advertise discount prices, you attract the worst kind of customers. Because they are disloyal and they are easily going to be ‘wooed’ away by someone else who’s advertising a lower price than yours.

That’s a game you cannot win. You just cannot win the game of discount prices’.

Jay Conrad Levinson