That car broke down regularly and I thought that this was normal. I carried five gallons of water in the trunk and some basic tools because you could actually fix a car yourself in those days. Computers were something NASA used to put men on the moon.
I bought my first new car in 1970. It was a Datsun 510 and the delivered price was under $2,000. To put that into perspective, a pint of beer cost 50 cents that year, and cigarettes cost even less. Two bucks worth of gas got me a long way, and I was making an astonishing $100 a week working for the manufacturers' rep. I was one happy dude.
And this got me thinking about three business models, and how things have changed, and how much we can learn if we just pay attention. Consider:
Automobiles. I had to decide on some options when I bought that Datsun. If I wanted AM/FM, I had to pay extra. Nowadays, AM/FM is standard, as is a CD player. Soon, all cars will probably have iPod docks and these will also be standard.
Air conditioning was an option, of course, and one I couldn't afford. Few people could in 1970, and most thought air conditioning was a silly luxury. Even years later, when the rep sent me out on the road and provided me with a car, air conditioning was out of the question. We wore suits and arrived at our customers' offices smelling very ripe on those humid days. And this was normal.
An automatic transmission was an option, as were power brakes and power steering. All the things we today consider standard were options then, and a new car was well within the reach of a guy making $100 a week. You bought the basic package and added the options you could afford.
But as the auto industry matured, the manufacturers began to include certain options as standard features, and they just bundled the price of those options into the base price of the vehicle. This became normal. Try buying a car with standard transmission nowadays. You'll have to pay extra and wait a long time. The same goes for air conditioning, and just about everything else once considered a luxury. It's all standard now.
Think about that for a moment. They slowly added options and upped the price, and Americans smiled and said thank you very much. No one complained. No one mentioned the payback period. We could take years to pay for that vehicle, and we enjoyed all these now-standard "options" every day.
I know a contractor who includes two low-water cutoffs on every steam boiler he installs. He doesn't ask the customer if he would like to take a belt-and-suspenders approach to steam-boiler safety, he just includes the second control in his price. That's it.
I know another contractor who will sell nothing but condensing boilers. He tells his customers that this will ensure maximum efficiency and he gives them the price and that's that. He's doing what the automobile manufacturers are doing and it works for him.
As markets mature, what were once options become standard features. Try including what you consider to be options in your base price and then sell the package. I think you'll be delighted to find that many people will just nod and sign the contract, especially if you make an analogy to what's in their driveway.
They're used to buying automobiles.
Apple. I was happy with my AM/FM radio and my stack of records albums. Then along came 8-tracks for the car, and cassette players and CD players and I soon had a houseful of records, tapes and CDs. And then the iPod arrived to make all of that other media obsolete, unless you're into nostalgia.
The folks at Apple go about their business in the same way that the automobile manufacturers once did. They do it this way because the market for iPods, although enormous, is still new. Buy an iPod; take it home and open the box and you find that you can't plug the darn thing in to charge it unless you use the USB cable and hook it up to your computer. If you want to plug your iPod directly into an electrical outlet, you have to buy a USB power adaptor for about 30 bucks.
And if you want to play your new iPod through your car's audio system, you'll have to buy an FM transmitter accessory. If you want to hear tunes in your home, you'll need an iPod Hi-Fi, which can cost more than the iPod. And it doesn't stop there. You don't like those little headphones that come in the box? Your choices are many, and each choice costs you a lot extra. Need music for your new toy? Apple sells that as well – tunes for 99 cents each.
iPods aren't cheap, and once purchased, most owners want to add options to enhance their listening experience. They do what the car dealers used to do, and so can you, if you'd rather go this way.
Offer a very basic heating system that allows for future additions. You'll contact your customer a year from now and talk about what you can do for them this year, how you can make the system even better. They'll be receptive because what you're suggesting at that point now costs less than what they paid last year, and it will make them even happier because they'll save money on fuel and be more comfortable.
You have to know something about salesmanship to do this, of course. And if you never go back to those customers, someone else surely will. There's a nice business to be had in following up the low-bidder.
So go back.
Soap. Proctor & Gamble is one of the most admired and successful companies in the world, and they got that way by making good soap, and by knowing their customer's buying habits inside and out. Their largest customer is WalMart, but their second-largest customer may surprise you. It's the 2.5 million high-frequency stores (called tienditas) in developing countries. Together, these make up 40% of the company's sales growth, a whopping $20 billion a year, up from $8 billion a year just five years ago.
A high-frequency store is tiny and there may be one on every block in a poor neighborhood. P&G packages their products in containers the size of what you get in a hotel room, and they sell these for pennies. A woman will buy a bottle of shampoo that is good for one use, rather than a large bottle, which offers a much better value, ounce for ounce. She buys what she can afford right now.
Proctor & Gamble matches their price to the denomination of coins that most people carry in their pockets by reverse engineering their products. For instance, because most earn a daily wage, Mexicans will carry five- and 10-peso coins. P&G knows that they will sell fewer products if they charge 11 or 12 pesos, so they reduce the amount of enzymes in a shampoo to get the price down to 10 pesos. They make their stuff easy to buy.
When training new product managers, the company stresses the importance of knowing everything possible about their customers' buying habits, and then they developing products that work well with those habits. In the case of the tienditas, this means very small bottles at a premium price (when compared to what you'll pay per ounce for that same product at WalMart), but that's the way folks in developing countries buy things. They're paying a lot more than you pay for soap and shampoo, but it works for them, and it works for P&G.
I learn by watching other industries, especially ones that are as successful as these three are. What do we know about our customers' buying habits? Are they driving basic cars with no options? Do they buy iPods with no accessories? What size are their shampoo bottles? Do they consider the payback period of any of these purchases? Or do they just buy what they like and then take daily pleasure in their purchases?
Do you truly understand your customers' buying habits? And do you really know how to sell?