Red Zebra Business Centre -Management Memos
December 2007. Making Measurably More For Your Business Since 1985!

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Have you seen the complete range of Red Zebra services?


Management
  • Business Planning
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  • Performance Monitoring
  • Profit Improvement
  • Book-keeping services
  • Debtor Control
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  • Stock Planning
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Marketing
  • Marketing strategies
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  • Ad planning
  • Ad production
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  • Customer Relationship
  • Management
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  • Product Ranging
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  • Corporate Videos
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  • Phone Answering
Staff & Recruiting
  • Recruitment
  • Employee Search
  • Job Design
  • Remuneration Strategies
  • Full Position Descriptions
  • Detailed Selection Criteria
  • Key Performance Indicators
  • Key Performance Measures
  • Model Documentation
  • Organisational Design
  • Conflict Resolution
Training
  • Customer Relations Training
  • Sales Training
Software
  • Sales & Marketing Databases
  • Accounting Systems



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Happy Christmas

happy Christmas!




L

et the art and science of management take a break - now we're in the final rush of pre-Christmas trade. Here is a light story to reflect on. It shows the dangers of relying on conventional wisdom, and how easy it is to do the wrong thing. 'Just because'!



This story takes place in a country town - almost any town, anywhere.

The local supermarket is a small independent - facing serious competition from big brand supermarkets in a major regional town that's just forty-five minutes' drive away. In fact, that's not the only problem. Wheat prices are down, and the town is in the middle of a drought. There is simply no money anywhere. The combination of price competition by the majors and the effects of drought have created a 'perfect storm' to throw the supermarket into loss. Whatever can be done?

The supermarket is owned by a local co-operative, and the manager and all the directors are very concerned. A survey had shown that all the townspeople strongly support the local traders, and do all their supermarket shopping in the town. After hearing that, the whole management team were convinced the situation had become hopeless. There is only a very bleak future ahead!

A better designed survey shows a completely different situation!

Thirty percent of the town's population actually do all their supermarket shopping in the major regional town, never buying anything from the local store! This part of the population typically has big families, and represents all the town's big supermarket shoppers. Another forty percent do almost all their supermarket shopping in the regional town, buying locally only in case of emergency. As it turns out, the only local people who do buy locally most of the time are those on welfare incomes, and the old and frail who can't get to the bigger town. Obviously, these shoppers are those with the least purchasing power. By far the lion's share of shopping is done out of town, but that means there is plenty of volume to win back.

The single reason for shopping out of town? Local prices are just too high, and everyone knows you can't compete with the big chains in the main towns!

ice cream A closer study is revealing. Consider this example - just one of hundreds.

There is an ice-cream product tagged at $8.50, and since it's big town price is $6.50, none is ever sold. On special every two months, the price drops to $5.50, and these packs simply walk out of the store. Considering the special buy price, the gross on each item is just 50 cents. Hardly enough, but the items do sell. Between specials, no sale at all.

The normal buy price is $5.90. If the shelf price were to be $6.50 (the same as the big chains) the gross on each item would be 60 cents. It's not hard to see that such a price gives parity with the big chains, and could win back sales from at least 40% of the population. Since the only sales ever made are at 50 cents gross, any additional sales would be both new sales, and sales at the higher 60 cent gross! The same can be said for hundreds of other popular 'landmark' items.

Why will that not be done? No one can believe you can make more money by 'reducing prices', even though this would actually increase the achieved price from $5.50 to $6.50. On top of the 'crazy' idea that reducing the marked price could make more money, every one knows you can't compete with the big stores!

'Conventional Wisdom' has a lot to answer for. Particularly, because it isn't very wise.









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