One American City Defies THE Rule

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.