January 31, 2005

Using Risk Reversal To Build Your Business

Whenever any two parties come together to transact business, one side is always asking the other to assume most or all of the risk. That's a simple fact of business. The problem is, when the person who must assume the risk happens to be your customer, the natural inclination is to hesitate, to be suspicious and uncertain, to not buy.

What makes them hesitate? They're concerned that once they've paid you their hard-earned money, your product will not perform or your service will not meet their expectations. They may also be afraid of looking foolish or being embarrassed if the purchase doesn't turn out right or sound or astute.

In the end, your prospect's decision whether or not to buy will be motivated by two things: (1) their confidence in your product or service, and (2) the level of risk (consciously or unconsciously, explicitly or implicitly) you are asking them to shoulder in the transaction. These two factors are often inversely related: Lowering the level of risk for the buyer can increase the level of confidence.

Your challenge is to figure out the best way you can reduce or eliminate the element of risk or fear on the part of the buyer. Take away the risk, and you lower the barrier to action - you make it easy to say yes. And if your selling proposition carries less risk than your competitor's, customers not only will be more inclined to say yes, they'll be much more likely to buy from you over the other guy.

Three Ways to Reverse Risk

So, how exactly do you reverse risk? It's important to realize that risk reversal is a promise to your customer: "If you're not happy, I'll do whatever it takes to make you happy." Most companies that use risk reversal offer a simple money-back guarantee. That's one way to do it, but there are other, even better ways.

Although the number of potential risk-reversing offers is limitless, there are three basic types:

1. Total monetary risk reversal: The most common type of total risk reversal is the moneyback guarantee, in which the seller promises to refund the buyer's money should the product or service not live up to expectations. A stronger (and more advantageous) variation is the "free trial" offer, in which the buyer does not spend any money up front. Instead, the buyer pays only after he or she has received, examined, and evaluated the product or service over a period of time (e.g., 30 days).

If you offer a risk-free guarantee in your business or you're thinking of adopting one, let me stress the following advice: Denominate what you're guaranteeing. So many businesses simply say, "Satisfaction guaranteed or your money back," or "You don't pay unless you're satisfied." But what does that mean?

The problem with these generic statements is that you force the customer to figure out what "satisfaction" should look like. It's much more effective to dimensionalize exactly what the customer can expect from the product or service. Speak in terms of specific performance measures.

For example, suppose you're selling vitamins or some kind of nutritional supplement. Don't simply say to your customers, "Your satisfaction is guaranteed - or your money back." Instead, say, "If you buy a 60-day supply of this vitamin, we fully expect you to feel more energy, focus at a higher level, lower or eliminate altogether your sense of anxiety or stress, sleep more soundly, think more clearly, and work more productively - getting more things done in four hours than you used to get done in a day. If that doesn't start occurring before the 60th day of diligently using this regimen, you are fully entitled to a complete refund."

Do you see how much more concrete that is? You have denominated the outcome. You have painted a vivid picture in the mind of the prospective customer of exactly what satisfaction should look like. Specifics such as these will give your guarantee credibility and measurability - and make your business stand out in the process.

2. Better than total risk reversal: In this approach, the seller not only guarantees a complete refund if the buyer is dissatisfied, but also offers a bonus incentive that the buyer retains even if he or she seeks a refund. The bonus is usually a product or service that complements the primary focus of the transaction, although it could be something totally different.

For example, a magazine publisher may offer a duffel bag or camera as a bonus gift with a paid subscription. If the subscriber opts to cancel, he or she receives a full refund and also keeps the gift. The customer is given the privilege of keeping the bonus in exchange for their time, consideration, and efforts.

The better than risk-free transaction acknowledges and rewards the customer or client for having enough faith to commit to purchase, incorporate, and use your product or service in their life or their business. By adopting a better than risk-free proposition, you dramatically increase the appeal of the offer, because there's a bonus incentive on top of a risk-free deal.

3. Emotional risk reversal: With "emotional" risk reversal, you take steps to increase your potential customer's level of confidence (and reduce their fear) before they purchase. This type of risk reversal is often practiced by businesses and professionals for whom complete monetary risk reversal simply isn't practical.

For example, if you're a Realtor, it may be impossible to offer a 100% money-back guarantee on every house or piece of commercial real estate you sell - but that doesn't mean you can't reverse risk for your clients.

Using an emotional risk-reversal approach, you could urge prospective clients to first contact a dozen or so of your past customers. Your prospects could ask these previous clients about their overall satisfaction with your knowledge, skill, and commitment. By learning this information up front, your potential client gains confidence in you and faces substantially less risk than if he or she knew nothing about you.

Posted by DK at 09:49 AM

Generating Positive Word of Mouth

Companies Get Big Because They Practice Honesty

Not a single company listed in the Fortune 500 (America's largest enterprises) cheats or bamboozles its customers. Companies get big because they practice honesty. Without it, no company can benefit from referrals, one of the truly great well springs of business success. This priceless corporate asset cannot be purchased. It can only be earned. It comes to you from "word of mouth."

Before a consumer buys a product for the first time, some unbiased source has generally conveyed satisfaction with the product. Way back in the beginning, Henry Ford captured market share because people told others about the reliability of his cars. Before people go to a movie or out to eat at a new restaurant, they tend to rely on word of mouth. Products, services and companies alike are judged by these influential verbal verdicts.

People like to be in the know, abreast of trends and on top of new events. Further, they enjoy dispensing these insights to others. They love to give advice and will always rush to help or aid others with information.

Word of Mouth is Critical

This advice about the importance of word of mouth advertising is even more true today now that the Internet has greatly increased the power of people to share their opinions with others.

If it seems I am belaboring this simple truth, it is because word of mouth is so critical to start-up ventures. This is especially true for anything new, where every satisfied customer becomes a salesperson. This indispensable asset far exceeds the benefits from any other form of advertising or promotion.

When companies mistreat or short customers, they beat themselves out of their most powerful helper. Unless you can unleash an avalanche of positive word of mouth, you will never advance beyond middling success and stagnation.

Stanley Marcus was instructed in the entrepreneurial skills by his father, one of the founders of Nieman-Marcus. The young Marcus built the company into a prominent, high-quality chain based on lessons that extended beyond the realm of conventional customer service and integrity. He recounts:

Somewhat aghast at a few of the unreasonable complaints and demands which he encountered in his first years in the business, he asked his father, "How can we afford to replace a garment which the customer has clearly abused?" He was referring to a handmade lace ball gown a customer returned after one wearing. "She should have known it was fragile."

His father replied, "Yes, she should have, but since this is the first fine garment she's ever bought she didn't. Explain to her that we will replace it, and tactfully call her attention to the fact that a delicate handmade lace will wear less well than a coarser machine-made lace. She'll know better next time."

Unconvinced, he asked, "How can we afford to take such a loss? The manufacturer won't assume any of the cost." His father replied very patiently, "She 's not doing business with the manufacturer, she's doing business with us. It costs us over $200 to get a new customer of this woman's buying potential, and I'm not going to lose her for the $175 this dress cost us." And then his father added, "When you tell her, do it with a smile." Over the years, this woman spent over $500,000 with them. He had learned one of the most important lessons in his retail career.

Word spread quickly and within a year of its opening the store had built a clientele of satisfied customers who spread the news of this unique store to all of their friends in the area.

Napoleon Hill tells a similar story of another great merchant. Marshall Field was probably the leading merchant of his time, and the great Field store, in Chicago, stands today as a monument to his ability...

A customer purchased an expensive lace waist (blouse) at the Field store, but did not wear it. Two years later she gave it to her niece as a wedding present. The niece quietly returned the waist to the Field store and exchanged it for other merchandise, despite the fact that it had been out for more than two years and was then out of style.

Not only did the Field store take back the waist, but what is of more importance it did so without argument!

Of course there was no obligation, moral or legal, on the part of the store to accept the return of the waist at that late date, which makes the transaction all the more significant.

The waist was originally priced at fifty dollars, and of course it had to be thrown on the bargain counter and sold for whatever it would bring. But the keen student of human nature will understand that the Field store not only did not lose anything on the waist, but it actually profited by the transaction to an extent that cannot be measured in mere dollars.

The woman who returned the waist knew that she was not entitled to a rebate; therefore, when the store gave her that to which she was not entitled, the transaction won her as a permanent customer. But the effect of the transaction did not end here; it only began for this woman spread the news of the "fair treatment" she had received at the Field store, far and near. It was the talk of the women of her set for many days, and the Field store received more advertising from the transaction than it could have purchased in any other way with ten times the value of the waist.

Posted by DK at 09:47 AM

You don't have to compete on price!

There are probably 30 frequently voiced frustrations that I deal with all the time.

Probably the biggest one is from people who are beleaguered and they're just frustrated, because they're relegated to being a commodity by the market and they're forced to compete on price alone. At least that's what they think they have to do.

It probably hasn't always been quite as brutal as it is now, but let me make a clarifying statement. One of the most saddening observations I make of business people in general today is their unwillingness to recognize that change is immutable. Change is going to occur whether you like it or not. Wishing and hoping that it would be like it was in 1996 or 1982 or 1970 brings you no advantage.

Defiantly refusing to meld, or comply, or acknowledge the dynamic changes in the competition and all those other factors in the marketplace, and acting ostrich-like, and burying your head figuratively, and continuing to use the old strategy that doesn't work and working it harder and thinking it's going to work better when it didn't work the first time is delusionary.

My whole recommendation is to realize that change is either your greatest ally or your most mortal enemy. And it has nothing to do with change itself It has everything to do with you and the way you embrace it, the way you capitalize on the action of someone trying to make you into a commodity, which would be to look at the situation entirely differently.

I would look at it and say, "Look, everyone else is being forced to be a commodity. They've resigned themselves to the fact that those are the rules they have to play by.

"You don't have to. You can be a proprietary. You can refuse to just sell 'blank.' You can make your proposition different. You can add other products or services to the transaction. You can make what you do different. You can make the product not be the real value, but the advice or the assistance or the technical expertise that you bring that would cost them a fortune. But it's free if they buy the product from you.

So all of a sudden you're not competing on the same commodity basis as anybody else. And all of a sudden you've got the playing field totally to yourself.

I have a friend who is in the fulfillment business. He works with people who sell all kinds of products by mail, and they ship them all over the country.

The fulfillment business is a commodity business where you go to them and everybody is $2 or $3 or whatever. But they're all pretty much the same. They're cheap-price-based. They're not emotionally wedded to the client. They're basically a bunch of impersonal, compassionless, large or small facilities.

My friend approaches it differently. His approach is if you work with him, here's what you get. You get a facility that worries about your product as if it were its own. You get a facility of experts who are paid millions of dollars for the team who collaborates with you and helps you devise ways to make your product sell even better. You get a facility where they get the orders out, guaranteed, every day because they know that if it takes longer, you get hit with a higher degree of refunds or dissatisfaction, and that lowers your profit and lowers your ability to pay them. You get a facility where they are constantly working to find ways to improve the way you do what you do so they can lower your cost. And you get a whole different attitude.

That positioning makes the $3 not even be relevant, because they go through an analysis of what it costs you if you use the wrong facility and they take three weeks to ship (because bulk rate can take three weeks). A lot of people will only ship once a week. When you do that, there are studies that show you get four times the refund rate. It doesn't matter if somebody is 25 cents lower if 25% of the orders come back. They position totally different.

I once had a dental supply company as a client. They sold all kinds of supplies that dentists use in their practice; drill bits, and floss, and rubber gloves, and stuff that numbs your gums, and mouthwashes, and all the other kinds of products. Plus or minus a few percentages, everyone's prices were the same.

I got them to take a different stance. I said, "Look, everyone's dealing on a single-issue basis when they sell. You're dealing with products and supplies to dentists. The truth of the matter is the dentist has a much bigger problem than who to buy his supplies from. He'd much rather buy more supplies if he had more business, more clients, more patients. He'd much rather keep more of the money that he had, meaning operate his business more effectively or pay fewer taxes. He'd much rather not have to worry about managing a staff that had a high turnover, but more loyalty, more perseverance, more enduring customers.
"If you can help that dentist on those issues and produce a profound and a measurable positive impact, they aren't going to mind buying from you. They'd much prefer buying from you, even if it's a little bit more, because you bring so much more value and advantage to their lives."

So I set up an operation where if you bought a minimum (and I can't remember, I think it was $500) of supplies a month from this business, you got free access to training tapes and programs and even experts we had on retainer in selling, in marketing, in management, in tax and investment planning and all kinds of things which brought far more advantage to you than the 2% or 3% difference in savings you might get buying from one of the others. That was free.

So I changed them from a commodity selling the same product at or around the same price, to a company who was committed to growing, preserving, and expanding your success. And that was free if you bought from them. Does that make sense?

I once helped a company that thought they had the ultimate commodity and were destined to forever be in the price bidding game. Where basically you've got to bid for something and it's blind. They basically say, "OK, bid on this process."

I got that company to refuse to do that. In other words, I said, "Let's look at the whole thing - what goes before it, what goes after the process you're bidding on, and what goes with it. Find out what those are and if there's enough profit in your bid, add that other step free as a bonus for the same price. Just because they say they want you to bid on binding this book, if you say, 'I'm going to bid on binding it, plus I'm going to bid on throwing in the covers, too, and it's the same price,' all of a sudden you're proprietary.

Many people are frustrated because they can't get enough new customers or leads. But the frustration is really based on the fact that they don't understand that they're self-serving. They're saying, "I don't get enough people to come to me" instead of saying, "How can I bring more value to others?"

When you change the focus, people will flock to you if you're holding something of value and you can communicate that. Most people don't have anything of value. People just want their reward. That's why no one comes to them.

Posted by DK at 09:45 AM

34 Ways To Use Direct Mail To Build Your Business

Here, in outline form, are 34 ways to use direct mail and direct-response marketing to build your business:

Mailing To Active Customers

You can try a number of things:

1. Increase demand through suggestions of new uses, personal reminders.

2. Include upsell enclosures on one product or service - they can sell others.

3. Focus on buying habit - reminders, flyers, etc.; keep customers active.

4. Maintain adequate service, which keeps customers active between a salesperson's calls.

5. Pinpoint intensity areas where you want to concentrate on participation and sales.

Mailing To Inactive Customers

6. Inactive-account, concentrated campaigns are very successful in this area.

Mailing To Prospective Customers

7. New dealers, agents, etc., and direct inquiries pave the way for salesmen.

8. Sample distribution is invaluable for introducing new products and increasing sales of established products.

9. To entice prospects, offer more facts and draw inquiries for probable buyers

10. Representatives' calls are follow-ups that help close sales.

11. Shows and demonstrations bring customers and prospective buyers to open houses, showrooms. etc.

12. New territories, customers, dealers, distributors, and prospects help expand territory.

13. Information about new. merchandise brings customers into your business to buy.

14. Sales information, attractively illustrated and presented, keeps demand consistent

15. Direct sales are an easy and effective way to increase annual sales.

16. To keep prospects interested, you need contact between the initial contact and the final sale.

17. You must build familiarity, so that your product or service becomes well-known and favorably thought of.

18. Solicit special groups because these are small but important sources of customers or prospects.

19. To get your product or service endorsed, give professionals, experts, and specialists your product.

Mailing To Your Organization

20. An employee morale newsletter or magazine can keep the staff's morale high.

21. New representatives should receive indoctrination information, sales manuals, letters, or bulletins at specific intervals.

22. Stockholders and benefactors are essential to continued growth of many organizations.

23. An organized approach for collecting accounts keeps all accounts current and your customers satisfied.

24. Respond to inquiries, answering all of them quickly and efficiently

25. Keep mailing list accurate and up-to-date.

26. Dealers' clerks - educate key salesperson for many products.

27. Develop new territories not otherwise accessible.

28. Ad and promotion tie-ins keep dealers and distributors aware of available aids, tie-in ads, etc.

Overall

29. In raising funds, a personal appeal to special groups of prospects is highly effective.

30. Build prominence and you will build awareness of your organization and what it offers.

31. Test marketing will reveal your strengths - and your weaknesses.

32. Welcome newcomers. It starts associations off right when new members and customers become active.

33. Capitalize on advertising with reprints current or advance notices to key personnel to increase ad value.

34. Gather important data using methods such as to prospects, customers, members etc.

Posted by DK at 09:42 AM

My competitor has started a price war! .... What should I do?

"I've got your manual, but I need help!" ...The caller was a lady from a suburban Beauty Salon. She was at her wit's end. The story she related to me was a familiar one. ..The guy down the road is undercutting her like crazy. She can't see how he's surviving at the prices he's charging. SHE certainly couldn't.

She tried to retaliate by running a discount voucher promotion based on the DIY Guide. It worked reasonably well while it was on, but now business has dropped again. "People seem to want lower prices, but I'm barely paying the staff wages at these prices. I'll go out of business unless I do something!"

Well, when the phone call finished, she was happier. Eager to try my suggestion. I'd like to share it with you, as the strategy applies in developing a competitive edge in virtually any business. But I'd like to make some other points too.

Firstly, to caution readers of my materials against skimming through them, then "lifting" ideas - simply copying them.

Secondly, the lady from the Beauty Salon is paranoid about PRICE competition.

Maybe the guy in the other Salon has made up his mind to put her out of business by price cutting. And while she puts so much credence on price, she's helping him do that. But really, how do you put a price on "beauty"? Sure, if you're selling bread or milk, and the guy down the road sells it cheaper, that's where people will go. But people go to a particular Beauty Salon for reasons often far removed from price.

Certainly, unless you are a Vidal Sassoon, you have to be "price comparable". But - that still gives you a fair leeway for setting your own price. The perceived preoccupation with price is more often in the head of the supplier than the consumer.

Recently, I was debating about the importance of price with an acquaintance ... a well known financial advisor. I made the point that he could increase his consulting fees (which I felt were far too low) substantially, and get MORE business, not less. Skeptical as he was, he did increase his fees, by 30%. No one has batted an eyelid. If you're good at what you do, people will (want to) pay for it. Charge too little, and they won't believe you have what it takes. There's an age old rule in negotiating that you should always let the OTHER person give their terms first- Often, you'll find they offer MORE than you were going to ask.

One last point here. You MAY risk losing customers by increasing prices. But then, you can't be all things to all people. While you may have made a decision to cut prices to the bone and compete at the lower end of the market, you'll still only get a segment of the market. There are people who'll never buy at that "cheap" end, for various reasons. They'll form a niche for someone who sells further up the market. Where you position yourself is a decision you have to make. Once you have, you should promote your "position" to the hilt. Personally, I'd prefer to be up the scale somewhat, away from the nerve racking high volume, price sensitive, fine margin end.

But, back to the Beauty Salon lady. Having given her the above arguments, I suggested she try a different tack. I asked her those inevitable questions: "Why did you go into your business? Are you particularly good at what you do? What do you feel you offer that is different, special, to your customers?"...

Yes, she assured me, her salon DID have something special ... a particular flair for hair design, and beauty consulting, rather than just "cutting and penning". People "rave" about their appearance after a session with her staff, she continued. So, given that one of our deep human drives is to have beauty, and THAT can't be cut-priced, I suggested she promote her ability to do "make-overs" ... transformations from plain Janes into beauties.

Furthermore, I suggested, rather than offer discounts to EVERYBODY, as she'd done before, she should offer a lucky draw prize of a "make-over" valued at so many dollars. Or give two away. Or ten. It'd STILL be cheaper than giving discounts to everybody, and would position her where she wanted to be, rather than as a discount shop.

Then, she could follow THAT up by publishing the photographs of the winners of her lucky drawing in her local paper ads. And follow THAT up by writing to the hundred or so who entered but didn't win, offering them some small incentive to come in, "as a thank you" for entering. Maybe even a "two for one" offer if they bring a friend, (thus broadening the customer base even more), or a little "beauty pack" of goodies ... (free samples provided by the manufacturers).

Clearly, the possibilities are there if she pursues them. But more to the point, possibilities like this abound in virtually ANY business.

Posted by DK at 09:41 AM

Falling in love with your clients

Here is a thought that will change anybody's life forever if they write it down, if they utter it every day in the morning, in the noon and at night, and if they live it:

Most people fall in love with their own company, product or service instead of failing in love with their clients and prospects. Your whole business success, your whole passion, your whole connectivity, your whole positioning, the way you are seen, embraced and respected, will change massively when you conceive of your business as interacting and enhancing people or other companies' lives and situations.

Most companies think, when they're trying to sell their product or service, "What do I have to say to get people to buy?" This company believes what they should say is, "What do I have to give? What value do I have to create? What benefit do I have to render?" That's a different take.

This also gives purpose and fulfillment to you. It makes it about ten times more enjoyable to be able to be in the process. Again, keep in mind, I'm talking about it in the context that I deal with the most, which is how a business owner or a professional can gain very much greater preeminence, success, profit, sales, repeat business from customers. However, it is so universal that it applies to how an employee can get more connectivity with their employer, how an employer can get more connectivity with an employee, how a person can get more connectivity and impact and success with a loved one, with a friend, with a neighbor, with a child. It's pretty powerful.

The focus of your concern, your state, your attitude when dealing with the other side (whatever the other side is - a customer, an employee, employer, husband, wife) should always be the non-verbalized communication of the fact that "You matter. Your well being is genuinely and truly and constantly important to me."

You should live that. The worst thing for a customer, a prospect, to feel is out of control, confused, unstructured. Your job, your challenge is to give them control. Give them clarity. Give them structure so they have empowerment. When you do that, you give them power; and power the confidence.

People who give people the answers; people who give people illumination; people who give people direction normally are respected because they empower you. Hopefully you're getting excited reading this yourself, because I'm empowering you.

Not everyone responds positively to this. There are impediments and frustrations in trying to apply this until it becomes a habit. How do you keep from falling off of your purpose?
You've got to believe your purpose is to contribute greater value - that you're here, and you're in business not to try to take somebody's money, but to try to give somebody a greater outcome for whatever they're doing - a greater result, a greater benefit, a greater yield. Once you start believing that ardently and genuinely in the craw of your heart, it becomes natural, and it will transform the way you do things. It will transform the way you connect with people. It will transform the way you communicate with people. It will transform the way you transact business with people, and surprisingly quickly the vast majority of people will come around.

You have to allow yourself to believe it. If you're feigning it, if it's theatrical, it will not work. You've got to extend yourself beyond your own self-consumption. You've got to subordinate totally your own self-interest and focus your life on others.

Are you married? Do you have children? Are you close to your children? Have you ever really gotten involved in an event where the children were so preeminent in your focus that your interest was subordinate? You didn't care about time. You didn't care about cost. You were just so involved in the process bringing such joy or knowing it was bringing them intellectual expansion, or whatever it was. You were so caught up in it that you totally subordinated your own self, and it felt so good.

That's the whole process. It feels so good. Most people in business today don't feel good about it. They're not happy. They're queasy. They're unfulfilled. They have no passion. They have no purpose. They have no connection. They're struggling to try to find passion again, to try to get purpose, to try to fall in love with the business.

Posted by DK at 09:38 AM