Marketing Mastery: Commanding margins of 40%-50%—or more

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May 26/June 2, 2014; Volume 27/Number 28

By Jim Augustus Armstrong

(First of three parts)

During several of FCNews’ Marketing Mastery webinars I host with Dustin Aaronson, I have asked attendees if customers are more price sensitive than 10 years ago. The overwhelming response is always a resounding “Yes!”

Most dealers have felt a big increase in downward price pressure since 2008. Here are some typical price-pressure dramas dealers face every day. How many sound familiar?

• You lose another sale because you can’t match Home Depot’s “$39 Installation.”  You know it’s a big lie; Home Depot marks up its products to make up the difference. Try telling that to customers when they’ve got “$39” on the brain.

• You spend $8,000 on a full-color newspaper circular and the only response you get is from a lady who wants vinyl for a tiny bathroom in her rental. After she blows an hour of your time having you haul out samples and giving her prices, she says she’s going to “check around” and get back to you.

• You lose another sale to a flooring installer who sells products out of his truck at “cost” just to get the installation work.

• You’ve been working with a distributor for years. You thought it was on your side. One day you find out it is selling directly to the public and undercutting your prices.

If you found yourself nodding your head to any of these, you are not alone. With competition from box stores, cheap-price chains and online discounters, many dealers feel they’ve got a gun to their heads, forcing them to slash their prices just to survive.

But not every dealer succumbs to downward price pressure. Savvy retailers across the U.S. and Canada are commanding premium prices regardless of market conditions or the presence of Home Depot. Here are just a few examples:

“I’m now getting margins of at least 50% on everything I sell,” Garry, a floor dealer from Illinois, told me. “And I’m even busier than before I raised my prices.” Garry had recently raised his prices by 30% or more across the board, and he did it virtually overnight.

Mark, a dealer from Illinois, took his flooring business from near bankruptcy to doing over $3 million in revenue last year. This year he is on track to do between $4 million and $5 million. His residential remodel margins are at 40% and above.

These dealers—and others I’ve worked with—have proven there is a better way, and they’ve proven it during a period in which consumers have become more price sensitive than ever.

There are three specific strategies these dealers have implemented that allow them to charge essentially whatever they want for their products. Over the next several installments I’m going to cover these strategies in detail. But the most important thing to realize is that you do not have to resort to price slashing in order to compete. If your prices are currently lower than you’d like them to be, and you like the idea of escaping the “cheap-price” rat race of doom forever, stay tuned.

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