Bruce Merrifield, President — Merrifield Consulting
•competitive strategy •distribution management best practices •product Line •profit strategy •expert interview •pricing strategies •Wholesale Distribution Industry •supply chain issues •business math for distribution •Randy MacLean •Bruce Merrifield
Monday, October 27, 2014—Can you really make money by giving things away?
In this video, Randy MacLean and Bruce Merrifield sit down to discuss what many will no doubt see as a controversial idea. Bruce started the discussion by looking at the scenario of a big company that had 200 products that were costing the distributor tens of millions in profit each year.
Bruce explains how, when you look at the super money losing products, they're usually bits and pieces. So when a company is losing money, they'll look at the bottom of their profit charts and realize that they're selling bits and pieces. The news that these products are losing the company money will often come as a shock to the business owners because the turn and earn on the items is so high. They'll be selling 60,000 a year, so customers obviously love it, but customers will often only be buying one or two at a time which increases the transactional costs.
The obvious answer to the problem is to bundle the product, Bruce explains further. Sell the customer twelve of something instead of just one. It's a suggestion that customers will often balk at and say something like, "We wouldn't want to tell the customer how to do their business!" However, if you have the client look at their local stores and how they personally buy stuff, they'll realize that high demand items usually aren't being sold individually. You certainly can't just buy one battery or paperclip. So how do you translate this new knowledge into a practical solution?
One solution is putting a lot of high demand, small value items into kits or only selling them in larger configurations. Another answer is just giving them away for free if the customer buys another product or spends a certain amount of money.
This option may work especially well for companies who sell to contractors, as contractors will often buy only what they need, even if it's something that they use all the time, and subsequently have to return to buy another one. The contractors may even see the benefit of keeping a larger inventory on-hand as a means of avoiding down-time and start buying in larger quantities on their own.
As counter-intuitive as it sounds, sometimes just giving the product away is the most effective solution since it saves you time, paperwork, and other transactional costs while providing an incentive for customers to place larger volume orders and to keep them coming back.
For more information about Bruce Merrifield, visit: www.merrifieldact2.com
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