MIT Study Proves Us Right

by Roy H. Williams

1. transactional customers are bargain hunters, and
2. brands are built on relational customers, and
3. the split between transactional and relational shoppers in most product categories is roughly 50/50, and
4. the key to successful advertising and profitable face-to-face selling is to speak to each group in their own language.

If you've heard me speak publicly, you've heard me say, "Talk to the customer in the language of the customer about what matters to the customer. Bad advertising is about you, your company, your product or your service. Good advertising is about the customer, and how your product or service will change their world." Do you know the language of your customers? Are they choosing with their intellect, Transactionally, or with their gut, Relationally?

You're about to buy a hardback book online. You go to DealTime.com, type in the title of the book, and get an instant list of hyperlinks to every online seller that has the book for sale, complete with shipping costs, etc. At the top of the list is the lowest price. Do you click it?

According to a just-released study by MIT's Sloan School of Management, only 49 percent of 10,000 monitored shoppers chose the lowest price. Fifty-one percent scrolled down from the lowest prices at the top of the list to buy from a better-known retailer down below, voluntarily paying several dollars more to buy from a vendor they knew.

Due to the left-brain, "pure logic" perspective of MIT, the research team said they expected close to 100 percent of the shoppers to choose to pay the lowest possible possible for the product. "The vicious price competition predicted by retailers and economists is not what we found," a spokesman said. "People were willing, on average, to pay $3 more to buy from Amazon."

But the MIT findings didn't surprise the CEO of Best Buy, America's number one electronics retailer. After analyzing the purchase histories of several groups of customers, CEO Brad Anderson discovered that just 20% of Best Buy's customers were responsible for virtually all the transactions in which the company lost money, while an entirely different 20% accounted for the bulk of store profits. In early 2004, Anderson began training salespeople in 100 pilot stores how to quickly recognize and accommodate the high-profit customers. In other words, they began training salespeople to "Talk to the customer in the language of the customer about what matters to the customer."

Would it surprise you to learn that Best Buy's 100 pilot stores are posting sales gains that are double the sales gains of the other stores? Not surprisingly, Best Buy is now converting additional stores to the new model. CEO Anderson says that a company should view itself as "a portfolio of customers, not product lines."

In a November 8, 2004 Wall Street Journal front page story, Anderson confessed to wanting to lose up to 20 percent of his store traffic – the most deeply committed of the profit-sucking Transactional customers. To deter these undesirables, the pilot stores are cutting back on the promotions and sales tactics that tend to draw them, and culling their names from direct-mail marketing lists.

Surprising though it may be, I can assure you it's the wave of the future. And Wizard Academy is riding the wave. Are you?

When Good Ads Fail

by Roy H. Williams

And got nothing in return.

What?

Like so many Sir Galahads on the quest for the Holy Grail, businesspeople continue to search with near-religious ardor for "the perfect ad campaign." And many, when they have found it, learn that it's not enough.

One of the greatest myths in marketing is the belief that advertising, by itself, is able to drive steady traffic into a business. This perception is supremely evident when a businessperson looks at an ad professional and says, "My only problem is traffic. If I had more traffic I'd sell more customers. Traffic is your department. Bring me customers. Now."

What makes good ads fail?

1. Too Little Repetition.

If your ad doesn't make an irresistible, limited-time offer, you're going to have to run it often enough for customers to first become aware of it, and then to become familiar with it. Next, you've got to wait for them to need what you sell. And the longer the product-purchase* cycle, the longer you may have to wait. (*Restaurants will see results more quickly than carpet stores because we eat more often than we replace our carpet.) Ads that make an irresistible, limited-time offer may work like magic, but the longer you run them; the less well they work. Until they finally quit working altogether. So what do you do then?

2. Deeply Entrenched Competitors.

No matter how good your ad campaign, it may not be enough to take customers away from a competitor who's doing a good job of meeting their needs.