Karen is a very successful artist and gallery owner who sells her artwork at prices ranging from hundreds of dollars to over $100,000. She recently noticed that customers were not purchasing her larger works as quickly as they had in the past. She and her staff assumed to know two reasons why. The first was the economy and the second was maybe her pricing had hit its peak.
Neither issue could be further from the truth.
The challenge was that Karen had forgotten some simple concepts that guide a business. The first is that businesses have “real estate” and “time” to sell. By real estate, I refer to Karen’s visible wall space; she only has so much of it, and some space is more valuable than others.
When a patron enters the gallery, the space that he sees first, typically the spot straight ahead and into the main section, is very valuable. Other spaces will sell but are less likely to draw the eyes with magnificence. The same holds true on the web. Given that most people stay a short time on a site, content that visitors see initially determines how long they’ll stay.
Real estate also means that in a retail shop there’s a value as a total. In Karen’s case, let’s assume that all her work in the entire store equals $1 million in potential revenue. If Karen sells a $30,000 item and replaces the now-empty wall space with a $10,000 item, her overall potential revenue drops to $980,000. Do this to a few other pieces of art, given that art size is not indicative of price, and Karen's shop can soon be valued at $900,000.
This is what happened to Karen, and because she was looking to the economy as the culprit, she didn’t her real problem. The average amount of each subsequent sale was lower than the one before it.
Compound low ticket prices with rusty sales skills, and the scenario becomes even more serious.
Karen’s sales staff, working off the assumption that the economy would deter people from spending on the larger-ticket items, placed more and more lower-priced inventory pieces on the gallery’s walls. Buyers who had the money to spend a larger sum on a nice piece of art found a very limited supply from which to choose. They would leave without spending a dime. Before they knew it, Karen and her staff were selling $500 prints instead of $16,000 paintings.
The cycle feeds on itself when Karen’s reaction to seeing $500 paintings moving quickly is to produce more of her less-expensive artwork. These new items replace more valuable real estate, and the store’s average drops again…this time to $700,000.
T. Boone Pickens once said, “When you are hunting elephants, don’t get distracted chasing rabbits.”
When Karen became distracted by $500 “rabbits,” she sold even less of the $60,000 “elephants.” Art collectors who like to diversify their collections often won’t buy a second piece of art from the same artist. So, when all they have to choose from is a smaller $2500 item, they buy it, and Karen loses an opportunity to make a larger sale.
How does this relate to you?
In an economy like the current one, decision makers are taking their eyes off the elephants—which don’t always translate to big or expensive—just so that they can make quota, fill the work pipeline, and pay the bills. In effect what they are doing is altering their business model such that in time, their reputation might change to fill smaller business orders, accommodate a different type of client, and sell less, because they changed their model.
A sales manager said the other day, he’s even driving his executives through bad parts of town when they visit to show why he’s not growing his volume. I always tell my clients that in bad times, there are always individuals and organizations that thrive.
During the Great Depression, many executives were earning $10,000 a year and more while others were out in the streets. This means you, too, have options to pursue for your organization.
In all three cases, be sure to ask why anyone would purchase from you versus your competition. Saying you have great people or deliver excellent customer service is saying you’re like everyone else. Be more specific when you examine the reasons why others should buy from your organization. Our products last 32% longer than our competition’s. Clients found a 312% increase in productivity within 2 months. Not once in 10 years have we been cited for a regulatory issue.
Karen learned that her higher-priced works were in demand. Her staff understood that to increase their sales, they would have to keep their “real estate levels” high. Once everyone redirected their focus on elephants, Karen churned out more expensive paintings, and buyers responded with purchases.
In good economic times and in bad, you can thrive. By understanding what you offer, you continue to grow good sales and desirable business opportunities. This is how you avoid becoming distracted by business you don’t want or can’t deliver on, and the type of business that drains your employees and resources.
Have to run…we see an elephant.
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