Reduce the Risk, Not Your Price

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Australian Bookkeepers Network
Reduce the Risk, Not Your Price
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In a business world where so many drop their
price at the drop of a hat and then complain that
margins are tight and its hard to make a profit,
I find it strange that so few businesses give the
consumer what they REALLY want when they ask for
a price reduction, which is RISK reduction. The
money back guarantee, which is offered by EVERY
business in this country (because if Im not
happy Ill take you to the Department of Fair
Trading and Ill win because the system is in all
favour of the consumer) remains the forgotten
value add, yet one that is remarkably lucrative
and at the same time very inexpensive to
implement (unless you give terrible service and
disappoint your customers on a regularbasis). Why
is this so? Simple. Because most businesses look
at the downside of the guarantee, not the
upside. The downside of the guarantee is the
ratbags are going to get us and that is true, a
very small number of people are going to exploit
your money back guarantee. But guess what? The
ratbags get you any way, whether you offer the
guarantee or not! What about the upside of the
99 of people who are impressed by the money
back guarantee and NEVER TAKE UP THE OFFER?
Presumably because the product or service lives
up to expectations. Sadly, in this country we
market at the people who are out to rip us off
instead of the people who are putting money in
our pockets and thats just DUMB!
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You want real world examples? I have plenty. I
was working in the nursery industry and one of
the franchise owners had the misfortune of a
chain store opening up right next door. He
couldnt compete on price (he was 30 more
expensive) and he didnt want to. So what he did
was he put up a big sign as an anti-opening sale
that said We offer a 12 months unconditional
money back guarantee. If you buy a plant form us
and it dies within 12 months, whether you kill it
or the plant is faulty, bring it back and we will
give you your money back or replace the plant
free of charge. The franchise owner was really
happy with how his sales went during the opening
sale of his competitor that at the end of that
six week trial period for the guarantee sign, he
decided not to take it down and he left it up
forevermore. Now, heres the point. After having
the sign up for 12 months he analysed his
business and he didnt have to give any more
refunds in the course of the year he had the sign
up than he did in the course of the previous year
when he didnt have the sign up yet his
business improved significantly. Why? Ive always
said that business is about understanding human
nature not tricky marketing and human nature
says that the value is in the offer, not the
delivery.
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How many people do you know that are going to
turn up seven months later with a dead plant
demanding their money back? Very, very few, if
any. Thats how many! How do they sell puppies
to children? You go to the pet shop or markets
and your kid falls in love with a little dog.
Now, if the pet shop owner has any brains he says
Your child obviously loves that puppy. Pay for
it and take it home and if youre not happy bring
it back on Monday and well refund your money and
put it to death in front of your children
(thats just a joke by the way, I dont advocate
euthanasia as a marketing strategy). Still, very,
very few people bring the puppy back. They just
want the reassurance that they can. But the
greatest suckers on earth when it comes to
guarantees are golfers (myself included). You
dont believe me that golfers are the greatest
suckers on earth, read a golf magazine. There are
ads in golf magazines that say If you dont get
a birdie on the first hole with this magic new
golf club, we will refund your money and these
ridiculous ads work on us idiot golfers. Why?
Because the golf equipment companies know they
are not selling golf equipment. They are selling
HOPE TO THE INEPT! And people will pay a lot more
for hope than they will for a golf club. Let me
share a personally humiliating true story that
reinforces this point.
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Many years ago my golf pro had a 500 driver in
the window (that used to be a lot of money to pay
for a driver). I was hitting the ball pretty
badly but I said to the pro Im not paying 500
for a driver. He replied that he had a trial
club that I could have a hit with for 18 holes
and if I didnt like it I could return it and
give someone else a go. As luck would have it I
hit it really well and at the halfway break in my
round I went into the pro shop and said Ill buy
it. The pro was walking out the back and I said
where are you going? The pro said Im getting
you a brand new one I said I dont want a new
one. This one works (any golfer will tell you
thats normal behaviour). In fact, Im not
suggesting I am paranoid but I left the words
TRIAL CLUB on it for two and a half years because
while the thing thinks its a trial club, it
knows as soon as it stops working its going back
into the pro shop! I happened to ask if the boss
was working that morning and, by chance, he was.
When he came over I asked him how long hed had
the guarantee sign up for. He said two years.
Then I asked him how many refunds hed given in
that two year period. He replied with a big smile
five. I walked away, also with a big smile.
That guy is clever. His place is doing terrific
and how many people do you think are going to
sample all the coffees just to get a refund from
him because his is not the best in Darling
Harbour. The perception is that his coffee is the
best because he puts his money where his mouth is.
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Guarantees can extend to further than product
performance. One of my clients in real estate
guarantees communication during the sales process
i.e. if we dont return your phone calls within
three business hours, we refund 200 of our fees
every time we fail to do so. A building client of
mine offers a no surprises guarantee i.e. if
the cost of the project blows out through no
fault of the customer (like changing plans), the
builder pays the blowout. A grocery retail client
of mine offers a double your money back
guarantee on fruit, vegetables, meat and deli
products because his competitor advertises a 100
money back guarantee. All of these businesses
have demonstrated profitability improvements as a
result of the implementation of the
guarantees. Think hard about your own business.
Are you communicating the money back guarantee
that you probably already offer to your
marketplace? And are there some novel ways you
can improve the perception of your business by
guaranteeing what your competitor doesnt? In
this ever increasingly competitive and price
preoccupied world, let your competitor reduce his
price, you reduce your customers
risk.   Bookkeeping in Australia
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