... ANALYSIS OF THE ... have been studying the buying habits of American ... for more than four decades. During this time period, study after study has shown that Amer
SCIENTIFIC ANALYSIS OF THE MARKETPLACE
Sociologists have been studying the buying habits of American consumers for more than four decades. During this time period, study after study has shown that American consumers tend to follow certain patterns in their shopping behavior.
One such pattern that has been noted many times is what is often referred to as the "20-60-20 rule." There is no better way to describe this than to use an example of one test that was done to prove this rule.
THE TESTING STAGE
The sociologists had set up a stage to test the buying behavior of consumers in a busy department store. What they did was rather fiendish once you step back to take a look at the test.
In the department store, they had set up a small stage with three stoves side-by-side. On each machine, they put a tag, which the customer was to take to the cash register for completion of their purchase. Next, they trained their hidden cameras to focus on the stoves and the activities of those folks who contemplated purchasing any of the machines. Additional hidden cameras were stationed at the checkout stand to correlate the purchaser to the purchase.
At the end of one month, the sociologists gathered the tags that were taken to the cash register to make the determination as to which stoves were actually purchased.
This is where we expose the fiendish scheme of these sociologists and the purpose of their test. Each of the three stoves was exactly the same! The only difference between the three machines were the price differences on the stoves!
One was priced low, one was priced mid-range, and the other was priced expensive.
Without fail, 20% of all customers purchased the most expensive machine shown. For these people, few took the time to examine the differences between the units. Again without fail, another 20% spent little time studying the differences between the stoves, and then opted to buy the cheapest one shown.
The people who conducted the test were astonished to note that most people studied the stoves with extreme care as if to learn the difference between the machines. Even after taking a long time to study the three machines, a full 60% of customers bought the mid-priced range!
The sociologists drew two conclusions from their test.
1. They decided that the majority of the 20% of consumers who would buy the most expensive item, and the majority of the 20% of consumers who would buy the cheapest item, cared only about price. 2. They decided that the remainder were more interested in buying based on their perceived value of the product. It was also determined that most of those who bought based on the perceived value of the product, felt price was a factor in helping determine the value of a given product. They decided that the customer felt that the higher price was indicative of better value.
THE LESSONS LEARNED FROM THE TEST
The lesson for us is that price is the ONLY factor in a purchasing decision 40% of the time --- half of those people will always choose the cheapest product, and the other half will always choose the most expensive.
The remaining 60% of the consumers in the marketplace are more interested in determining the value of a particular product and making their decision based upon how they perceive the value of the product they are considering.
As a businessperson, slash salesperson, you must learn to build value into your product offerings. The more value your customers perceive, the more they will be willing to pay for your products.
Sure, you could decide to cater to the 20% who want to buy the cheapest every time, or to cater to the 20% who want to buy the most expensive. The decision is your own. But by building value into your product, you can cater to the 60% and pick up a few more from the upper and lower extremes.
BREAKING THE 20-60-20 RULE
Amazingly, one city in America defies the "20-60-20 rule!" In this city there is a manager of a retail store, whom I know personally.
According to him, the "20-60-20 rule" does not apply to his city. According to him, every person in his city buys the cheapest product every time. So, in his delusion, he believes he must low book every product in his inventory!
No wonder his store sales average is dropping every year! He is giving away his profits because he believes that his city is different from every other city in America.
He is in fact wielding a two-edged sword. By teaching his customers that his store is a low-cost merchandiser, he is condemning himself to having to continue to compete only on price! By competing only on price, he is backing himself into a corner that assures that he has to compete with Wal-Mart.
The truth is that no small store can compete with Wal-Mart on price alone. The only way to defeat Wal-Mart is to beat them on value, since the small business cannot buy products in the quantity needed to get Wal-Mart prices!
A FOOL AND HIS MONEY ARE SOON PARTED
The fool who decides that they must compete with the big merchandisers on price alone has sown the seeds of their own destruction.
In deciding to be a low-cost merchandiser, one has ignored the fact that the big boys can offer those low prices only because they turn a much higher volume than their competitors.
By forgetting this important lesson, the little guy who wants to compete with the big boys on price alone is doomed to business failure, because he will not be able to cover his costs of operation and he will end up foregoing all profit.
Don't be a fool. Cater to the 60% instead of the 40%, so that you can joyfully count your profits rather than your losses.