• March 1, 2007
  • By Colin Beasty, (former) Associate Editor, CRM Magazine

Required Reading: The Price of Profiting

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Companies have been doing it for years: They slash prices and implement a huge volume sale to increase buyer value and gain market share, all the while sacrificing profit margins and eroding customer satisfaction. In The Power of Positive Profit, Graham Foster attacks the issue of false business success promoted through volume selling and cost cutting and offers business lessons and breakthroughs for making an appropriate profit while improving your competitive edge. CRM magazine's Colin Beasty spoke with Foster. CRM magazine:
In the book you tackle the issue of volume selling and cost cutting by corporate America. Why are companies making this mistake? Foster: There's always a growing market in America, and that's not necessarily true about the rest of the world. In other parts of the world, if you lose a sale, there isn't another one around the corner; there isn't another type of customer and product that is waiting to be purchased. In America we live in a volume market where it is easy to get another sale if you drop one. The other reason volume selling is such a problem is that television advertising in America is volume predicated. The automotive company is a great example--$2,000 off the next purchase of a new car, low down payments, etc. The implication behind these kinds of advertisements is that volume is the way to construct a successful business. For too many companies, selling as much as they can at the lowest possible price has become the sole motivator. CRM magazine: How can this high-volume, low-price mentality hurt customer satisfaction in the long run? Foster: There's an old quote that says "People matter more than things, and profit is a thing." In the end, if you upset the customer, you'll kill the stream of profitability. A perfect example is Wal-Mart. Most Americans don't know that Wal-Mart went broke in Germany last year and closed down because no German believes that anything cheap represents something of quality. America used to believe that. Americans used to buy the very best they could afford, or they waited until they could afford the best. This attitude among Americans is slowly changing, because when price becomes the only differentiator between you and the competition, customers become disloyal. Toyota is teaching Ford, GM, and every other American car company that lesson with their Lexus brand, which is a perfect example of being able to charge more for a product by offering superior customer service. CRM magazine: What will readers find most interesting about your book? Foster: I think people will find the money charts interesting. Salespeople, managers, and owners both big and small can use them to understand how to make a better bottom line without using volume selling. The second is the damage done by discounting. For example, Wal-Mart offered 35 percent off electronics over the holidays. Based on the 25 percent gross margin, that means Wal-Mart would have needed to increase sales in the electronics departments by 1,400 percent. When the store telephoned Santa Claus, he couldn't deliver. Eventually these volume markets will turn around to bite the consumers. Wal-Mart is a dying breed, it's a dinosaur with cancer. It will take a long time to die, but it will eventually happen if it continues to take this approach. Other Page Turners:
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