Price Revisited

Few business owners realize the powerful leverage that lower prices can have on their profits. To get a feel for it, consider this hypothetical example.

You own a bowling center and you normally sell bowling at $3 per game and shoe rentals for $3.00 per pair. On a transaction of two games and shoe rentals, your revenue is $9.00 per game.

After calculating your fixed costs and variable costs, you estimate that your costs per game are about $1.00 per game and shoe rentals about $1.00 each. On this transaction, you make $6.00 for a 67 percent gross margin.

After keeping prices at this level for five years, you raise the price to $3.60 per game. That’s a 20 percent increase — not small. But it’s nothing compared to the effect on your profits. Say 200 people buy the $9 package each week. At $10.80, 20% less games are bowled. But even at 20% less, the business makes 3% more profits. Details:

Price Transactions Revenues Costs Profits
$9.00 200 $1,800 $600 $1,200
$10.80 160 $1,728 $480 $1,248

What happens when you cut prices? Say you drop it by $1 or 11 percent. At $8, you sell 20 percent more games. Revenues climb about 9% or $136. Costs per game stay the same, so total costs increase 25 percent. You make almost 3% less money for working harder. Details:

Price Transactions Revenues Costs Profits
$9.00 160 $1440 $480 $960
$8.00 192 $1536 $600 $936

When does cutting prices dramatically increase profits? The answer may surprise you. If you cut prices about 10 percent, you have to have 18 percent more transactions to make more money. At $8, you’d have to do 188 transactions to beat the $960 profit you got from 160 transactions at $9 each. Your extra profit comes to $1. Details:

Price Transactions Revenues Costs Profits
$9.00 160 $1440 $480 $960
$8.00 188 $1504 $543 $961

On the other hand, if you raise prices 25 percent you’d have to lose almost one out of three customers before it hurt profits at all. Details:

Price Transactions Revenues Costs Profits
9.00 160 $1440 $480 $960
$12.50 115 $1440 $690 $950

If you’re cutting prices without having a strategy to sell more ancillary products you’re going to need a lot more new customers than you might have suspected to avoid losing money. Just driving traffic in the hopes of selling more food and beverage is not a strategy.

But driving traffic with a clear goal to sell more food and beverage is a very viable strategy.

Need A New Idea?

Sure you need a new idea, but if I gave it to you what would you do with it? Would you say, "Just cant get to it", "Don't have enough time", Can't get my people to do it? Maybe.

And then when it doesn't happen or happens half a***d, would you say, "we tried it, it didn't work." But would you ask why it didn't work?

What didn't work? The idea? The effort? The communication? The timing? Doesn't matter. It's easier to blame the idea. Poor, pitiful idea. It gets no respect

Yet, there are more new ideas out here than ever before, more ways to get the customer to buy than ever. The Internet has more marketing information to stimulate your brain than you can possibly absorb. There ARE no shortage of ideas, but there are idea killers.

The biggest killer of the new idea is because "YOU don't like it." Or your spouse doesn't like it. OK, admit it. You didn't like it. It's OK...if you recognize that. Just make sure you ask a potential customer or ten if he or she likes it. Because that is really all that matters, isn't it?

The new idea, the great idea, the new product you have been looking for is THE CUSTOMER.

Be Different or Go Home

Bailouts, bankruptcy, foreclosures, unemployment.

The news just doesn't seem to get better. In fact, it seems that it is getting worse. But even among the dozens of proprietors we see each month, these are a few that are going against the trend and actually showing increases.

What are they doing that you may not be doing?

Here are some examples:

"I have had a salesman out in Fort Worth since July. Today we got Citi Insurance group with 70 women to bowl at 1PM and pizza and soda, they were whopping and hollering and having fun. Team building, they drank like fish from the bar. Tomorrow 70 more will come and 40 more Friday. Our holiday parties look great. Last weekend we had the best weekend since we purchased the center. We are working on live bands two nights a week at 10PM. First night we did $2400 in the bar. Also we started two leagues on the weekend. It is out there for the getting:-)"
J. Brooks, Texas

"Since we have started our Rewards Card Program, I have seen people coming in more. They like the idea of CASH BACK REWARDS. They also love it when we do drawings. I go out and get other businesses to donate prizes, like 30 day memberships to a gym, a free med. pizza.

This week end I invited a Chiropractic office in to do FREE 10 min. Chair massages. The customers loved it! I had people coming up to me and asking when the next drawing was going to be. They did not want to leave if the drawing was going to be soon. I gave FREE games of bowling away as prizes. In order to get the FREE games they had to have our Rewards Card and they had to activate it. We gave out lots of cards.

People will be back because they are going to want to use their FREE games! So, what's our new product? The customer is our new product. We reward them. Do fun things. Give them things for doing what we want. You want free games, sign up for a rewards card. You want to win that prize, stick around a little longer for your chance to win. (Three people I talked to stuck around for the drawing. Two out of the three went to the snack bar and spent around $20.00 each.)

We make them feel special by sending our top 100 customers an e-mail flier telling them how happy we are that they are our customer. Bring this flier in and we will load an extra $5.00 on your rewards card. These are some of the things we are doing and we are seeing results.
D. Nichols, KS

To make it in this competitive environment, you not only have to be better than ever, but you have to be overwhelmingly different enough to get the consumer to make a purchase decision.

So what are you doing to be overwhelmingly different?

Chutzpah

The word "chutzpah" (pronounced hootspah), in Yiddish, means gall, nerve, tenacity, and sometimes an often used word describing a man’s genitals.

However, the word is basically untranslatable without a story.

One day there was an old woman who was selling pretzels on the corner of 47th street and Madison Avenue in Manhattan. A young man from an ad agency saw her and went over, put down a quarter and never took the pretzel. Everyday, he would pass her and put a quarter down, but never take the pretzel. They never spoke, but only exchanged glances. This went on for weeks, months and even years. Three years to be exact.

Then one day, the young man comes down from his office, walks over to the pretzel cart and puts down his quarter. Just as he was about to walk away, the woman turns to him and says, “We had a price increase, pretzels are now 35 cents."


Moral of the story: Don’t wait so long to increase your prices. :-)

What's Next?

As much as we talk about training employees, hiring employees and getting better employees, it seems that even with these changes, we improve our business, at best, in small increments. Sometimes you get lucky and you find a superstar or someone with the potential to be a superstar.

More frequently, you hire someone with more experience. someone who knows what to do NOW.

But what you really need is someone who knows what to do NEXT.

A new manager comes on board and after a few weeks impresses you because she developed and built a new short season league in a spot you have been struggling to fill. But what is she going to do next? What is her plan for these people after they finish their 8 to 10 week program?

"Rolling them over" is a strategy that we hear frequently and it can take on many faces, but the really good person, the person you need on your staff is the person who knows what to do next and knows what to do next when they are implementing the NOW program.

The continuity of business today requires a dynamically flowing process. Not one program and then another, but a strategy that builds upon each program and (customer) experience and has the next step process built into the initial implementation.

Think of it as playing pool. When you get the shot to sink the seven ball in the side pocket and it is a virtual "gimmee", the important part of the shot is not sinking the seven ball.

No, the important part of the shot is where the ball ends up (the position) after the shot so it can set up the next shot!

Who in your organization plays pool and knows what to do NEXT?

Taking It To The Streets

One of my clients sent me this:

“Henry Lewcyk had an interesting statistic at the conference when he was talking about marketing: 75% of all centers invest the bulk of their marketing budget for "in center promotional material". This translates to we are only willing to spend a few dollars copying fliers to hand out to people who come in anyway.

One other comment about the conference: Everyone was talking about how to take your open play bowlers and make them into league bowlers. The reality is most of them do not want to be in leagues and there is nothing wrong with that.

As an industry we ought to spend more time talking about those people who come in a 2X a year and spend a $100 or so.

We need to focus on getting them back 4-5X a year instead of two. That would be a lot more likely than trying to make them into league bowlers”.

Henry is generous. More like 95% of the centers invest in “inside marketing” (i.e. fliers, posters, more fliers, and more posters). Now centers are emailing; do you think it’s a replacement for direct mail?

Getting people to come into the center more frequently is less about communicating the product you have than it is about developing a new product.
• 5 to 6 week fun bowl sessions for busy young professionals at a premium price that involves a charity they can relate to (AIDS, Breast Cancer, Kids Charities, etc)
• 3 to 4 corporate parties scheduled annually as a team building event
• 4 pack of fun: bowl 4 times and get the 5th time free 9 especially good for packaged programs like Pizza Pins N Pop. No you’re not giving it away, you’re getting people to come back two or three more times than normal

Maybe it’s time to take your marketing to the streets because THIS is the new normal.

Getting To The Change

I received a lot of feedback on my blogs about advertising campaigns, and new technology and wanted you to know of them. Here are a few.

Comments ranged from:

“You’re the lone voice in the darkness crying out for what we all want to say about new products,” (thank you, but…) to "we need a real hero, a Michael Jordan or even a “Tiger Woods (well, maybe not THE Tiger!) to “small center or big center, this industry cannot afford NOT to do something. Our products are old and tired and I modernized 3 years ago!” (“but what?”, say the masses).

One industry pundit indicated, and I agreed, that “certain companies have been more giving to the industry than others, but it seems that proprietors are not willing to reward these “involved” companies for their good work and ‘contributions’ but rather will only reward those with “cheaper prices.”

Sad, but true.

And finally, one industry veteran said, "Aw c'mon Fred. This is a pipe dream. We aren't going to do anything new and besides are you serious about getting proprietors to even partially fund an industry marketing campaign? But keep dreaming, maybe something will happen."

Wouldn’t it be cool if we could get some great new game changing products and then really have something to say?

Yeah, it would be very cool indeed!

So what kinds of new products have you been dreaming about? Let me know.

Maybe we can build it together.