| PREMISE
Value eyewear is like the weather. Everyone complains about it but
nobody does anything about it. As an eyewear retailer you can do something about it if you understand what it means; specifically, what "value"
means to the consumer.
WHAT IS VALUE?
Miriam-Webster defines value as "An amount of goods, services or
money considered to be a fair and suitable equivalent for something else;
a fair price or return." In simplest terms it means a "good
deal," not necessarily
"cheap"… and value eyewear
need not be the exception.
Unfortunately, value eye-wear within the optical industry has indeed come to mean
cheap or inexpensive. In fact
the cover story of 20/20 in
June of last year was entitled,
"The New Faces of Value
Eyewear." In that article,
"value eyewear" specifically
denoted frames priced under
$25 wholesale. This is not
necessarily value, but it is
cheap. To be successful in
selling value we must remove
the cheap.
How do we do this? First we
must understand consumers
and how they shop. Next we
must understand how they perceive value. Finally we must understand how
to fulfill their expectations when they shop in our stores.
Why do people shop where they shop, and who are today's shoppers?
Consumers base their shopping preferences among the attributes of
price, convenience, service, selection and quality. Most enterprises will
model their business with a focus on one or two of these attributes. As
will be seen later, trying to be all things to all people sends an unclear
message to the consumer, as if to say, "I don't know who my customer is,
so I'll just try to sell to everybody."
Additionally, in a 2004 study on "How America Shops" complied by
WSL Strategic Retail, it was revealed that the percentage of older shoppers (Baby Boomers) has increased from 22 to 35 percent since 2002.
These are among the most demanding shoppers. When asked why they
shop particular retail outlets the three top reasons were always in stock,
convenient location and lower prices. That is, "I want what I want, where
I want it, at a low price."
But this isn't the whole picture. When studied further, it came to be
understood that people don't buy price, they buy value. If consumers
believe they are paying too much for something, the seller will lose business. If the seller charges too little he gives up margin and possibly profitability. The challenge is to close this pri/2020Exams/value gap so that the highest
percentages of a business's customers feel they are paying a fair price for
their purchases.
To back this up, WSL suggested 70 percent of shoppers indicated they
were annoyed with retail practices that erode the pri/2020Exams/value balance and
make it harder to shop. Successful stores surprise shoppers with pri/2020Exams/value
as well as an easy, fun shopping experience. It's called "retail entertainment"
and eyewear stores rarely fit that definition. But they can and should if they
are going to compete for this largest segment of the consumer universe.
WSL describes the new definition of shopping expectations in the current politico-economic
times as "the new normal." The new normal shopper has a willingness to spend
but cautiously, with a desire to simplify as well as enhance their lives. Retailers
that help shoppers to be economically cautious, simplify their lives (and
shopping experience) and provide an emotional connection are the winners in
the new normal. They are buying in more places that offer low prices with the
right selection.
Sixty percent of shoppers across the board say "before I buy something
now, I stop to ask myself, ‘Is this smart use of my money?'" They expect
the best price while shopping in the most efficient manner. They also
expect shopping to be exciting, emotionally satisfying and fun. We must
learn what optical retailers can do to meet these expectations.
For consumers to maintain loyalty to a particular store, that store must
consistently satisfy their needs for product selection, convenience and
price. Retailers must become indispensable to consumers so that each
time they shop they are guaranteed satisfaction. They must believe they
are receiving value for the time and money they spend.
If they are not satisfied, they will move on. Store loyalty easily vanishes
with one poor shopping experience. In the optical business this could be
as simple as not having a particular frame in stock, sales staff "attitude"
or delays in delivery of their glasses.
WSL states that 80 percent of shoppers define themselves as sale shoppers. What they are really saying is, "I am a value shopper. Address my
specific needs. Give me a selection of unique products and services.
Make yourself indispensable to me and I will be loyal."
PRICING
What question does almost every consumer ask? "How much is it?" Yet
few businesses, optical included, give much thought to their pricing
other than applying a standard mark up to their material costs.
Retail businesses typically base their price setting strategy on one of the
following models:
Mark-Up Pricing: This
is the easiest and hence the most common pricing method. The
seller simply adds a standard markup to the product's cost. To
ensure profitability, the retailer must first establish their
minimum-selling margin. For an established enterprise this is
done by dividing its total operational costs (direct and indirect)
by the number of transactions in a given period. This establishes
a baseline from which to add margin. For new businesses it is
more complex and requires a "best guess" approach to be modified as sales data becomes
available.
Competitive or Going Rate Pricing: This is self-explanatory. The
retailer simply fixes their prices based on competitor's prices. Gas stations or other commodity businesses with consistent cost structures typically use this pricing approach. Obviously, it becomes difficult for the
retailer to differentiate themselves under these circumstances.
Every Day Low Pricing or Price Sensitive Pricing: In these
models, retailers offer consistently lower prices than traditional retail outlets, normally without special sales or promotions.
High/Low Pricing: Retailers who first place product at regular pricing
and then run sale or promotional pricing use this method.
Pricing By Position: Positional pricing is non-quantitative. The retailer simply determines how they want to be perceived within their market
and prices accordingly. If the retailer wants to be perceived as high-end
they will price their products at the top of the market and vice versa if
they want to be seen as more down market.
Striving to be the low price leader for a small retailer is dangerous and
difficult to maintain. A bigger enterprise with greater scalability can operate at slimmer margins and undercut smaller operators. Additionally,
positioning a business on lower pricing alone leaves very little room for
movement and will lack credibility if it then focuses on one of the other
attributes mentioned above.
Obviously, whatever the positioning strategy, it must be compatible
with the product range. Remember pricing is a financial matter but it is
also a marketing matter in that it determines a businesses position within
the marketplace.
Pricing
for Quality: Similar to above. Retailers often use price
as a marker for quality. Studies have suggested that consumer's
perceived correlation between quality (as rated in Consumer
Reports) and price accounts
for as much as 25 percent variability in pricing. When consumers
have no objective way to determine quality, they use price
as an indicator. As will be seen, the author found this to
be especially true in eyewear retailing where consumers had
no way of discerning either the quality of their frames or
the accuracy in which their prescription was filled.
Perceived-Value
Pricing: This is perhaps the most relevant and
most difficult approach to pricing. Companies base prices on
the value of their products as perceived by customers.
As consumers of wholesale goods, optical retailers are also participants
in "perceived-value pricing." We know that designer frames often cost
no more than generic frames to manufacture yet retailers will pay many
times more for the branded product. Why? It's partly because of perceived value. Value is not inherent in the better frame but it still commands a higher price.
As such, the
difficulty lies not only on the pricing side of this equation
but also on the purchasing side. In order for perceived-value pricing
to be viable for the retailer, the buyer must know his minimum
required margins. They must then evaluate the product for its
perceived value. If the product cost is such that they can make
margin, a purchase decision is made. If the margin cannot be
made at the perceived value price, the purchase should be waived.
Buyers don't often have that constraint.
PRICE AWARENESS
Studies have shown that many consumers are often not aware of what a
product is supposed to cost. Consumers who are price conscious often
develop internal reference prices based on expectations of what something
should cost. These are derived mostly from shopping experiences. Stating
the obvious, all consumers respond to pricing. That is, seemingly arbitrary
price increases will diminish sales and sales or discounts will increase sales.
Retailers will often try to alter these internal price perceptions by giving external reference prices. The idea is to give indicators to the consumer how much something should cost. The most obvious example is
MSRP (manufacturer's suggested retail price). If accurate this can be a
helpful tool to the consumer when making purchasing decisions. Often
however, MSRP is arbitrary and a comparison to "our price" becomes
misleading. Retailers that use this system must be accurate and consistent to maintain consumer credibility. If a consumer feels misled or cheated it is unlikely they will be a loyal customer.
HOW CONSUMERS PERCEIVE VALUE
Lexus has positioned itself as a luxury car manufacturer. Yet some would
argue that a Lexus offers good value even though their cars are expensive to purchase. They have a reputation for building quality cars that
have sound reliability, excellent safety ratings and high resale value. The
flip side of this argument is that Lexus, which is Toyota's upscale line of
cars, are built on Toyota platforms with many overlapping components.
Yet they cost two to three times that of a Toyota. They are both capable
modes of transportation. Are leather seats and 12 speaker sound systems
really worth the extra $20,000 to $40,000? Are Lexus automobiles a better value? Apparently to many people they are.
In a more relevant example, the author of this article commissioned a
blind focus group study. In this study, eyeglass wearers were asked to
rank the perceived attributes of style, quality and functionality of different eyeglass frames. They were then asked to translate those attributes
into what they felt the eyewear should cost.
The focus group participants were given a selection of frames to evaluate. All identifying markings of brand and country of origin were
removed for this experiment. The frames provided were an assortment
of plastic and metal frames all currently manufactured with wholesale
price points ranging from under $20 to over $140. Participants were
asked to rank frames from most expensive to least expensive.
The results were not surprising. There was no consistency in the rankings. Many less expensive frames were ranked higher in perceived value
than those costing many times more. Frames that appeared more fashion forward were deemed to be more expensive than traditional styles.
The same experiment was then conducted again with different frames
but the same brands or manufacturers. In this experiment all the markings were left on. As imagined, those frames with prestige designer brands
ranked significantly higher than those from lesser known or generic
brands. Participants admitted that they often paid more for recognizable
branding, as it was often their only basis for quality or comparison.
Similarly, lens quality is often difficult for consumers to differentiate. In
the same focus group sessions, eyeglass wearers were asked how they
knew if their prescriptions were filled exactly and how they decided
where to shop.
Participants again admitted that there was no objective way for them to
evaluate lens value or quality. Either they could see well or they couldn't. It
was purely subjective. Although some participants felt if they paid more for
their lenses, the quality would be better, ultimately they agreed that what it
came down to was trustworthiness. If they were concerned about the accuracy of the filling of their prescription (and not all were), the store had to
project an attribute of trustworthiness to be part of the value formula.
Consumers often don't have the time to research products. As we have
seen, judgment of value is often based on the price of the product. And the pri/2020Exams/benefit
curve is non-linear. Prices typically increase more rapidly than product benefits.
Is a designer suit costing $1,200 four times better than one costing $400?
Does an $800 frame possess 10 times the quality than an $80 frame? Ten times
the value? Possibly; but not likely.
Quality often does increase with price, but is the marginal quality benefit worth the enormous marginal increase? In the optical industry there
are designer frames and there are well made look-alikes, there are branded lenses and there are generics often made by the brand-name manufacturers. To the "perceived value" retailer and consumer this presents
tremendous opportunities.
Using the example of designer vs. similar looking frames, if plotted, the
crossing point of "perceived value mentality" and "affordably priced eye-wear" would be the best of both worlds. For the knowledgeable consumer, they receive a product they deem to have high value at reasonable cost. For the retailer, he can sell a reasonable quality product at a
higher margin than the designer product.
POSITIONING FOR VALUE
For the purposes of this article, "positioning for value" means offering
the "right" combination of quality and service at a fair price. It does not
mean offering the lowest quality product at the lowest cost, nor does it
mean discounting exclusively high-end product.
Too often businesses fail because they try to be all things to all people.
The example of a nearby watch store that failed is a perfect example. In
order to attract the widest customer base this store carried watches
priced from $29.95 to over $5,000, all "on sale." Consumers who were
looking for fine watches soon realized that this store was not the place
to shop if the store also carried $30 watches. Conversely, the rows of
solid gold chronometers frightened off people who were looking for
inexpensive timekeepers. This store that tried to be everything to everyone quickly failed. Surrounding stores with more tightly defined target
markets continue to thrive.
The same can be said for eyewear sales. While it is common sense to
have a range of price points, retailers must define their market and stay
focused. It is difficult to find examples of successful retailers who cover
all price points within their industry. Perhaps there's a message here.
At some point each enterprise must ask itself, "Who do I want to be
my customer?" But even before answering that question, business
owners must first deal with strategic issues. These issues will relate to
factors such as location of stores and the demographics of target customers. Setting up high-end stores in blue-collar neighborhoods might
not make sense just as "price-sensitive stores" will not have entrée into
high-end malls.
DEVELOPING AN "ADDED-VALUE PRICING" STRATEGY
People buy value, not features and benefits. And as we've seen, value
means different things to different people. Value is a benefit for sure, but
a benefit is not necessarily of value to all people. It is clear however that
perceived value pricing attracts and maintains loyal customers.
One of the key ways to establish and maintain this pricing strategy is
by developing uniqueness (perceived or real) in the delivery of your service and products.
Consumers are value conscious rather than price conscious. Some customers will pay more for the convenience of one-hour service. Consumers
also give personal value to a product. A teenager will pay a premium to
have a pair of designer sunglasses worn by his favorite musician.
WHERE DOES PRICE/VALUE FIT IN OPTICAL RETAILING?
When customers compare competing products, they are really comparing value. The only ways to increase the value of your products is to add
benefits or reduce the perceived risk factors. Some of the ways optical
retailers can do this are by:
- Adding
benefits
- Better free
cases and cloths
- Inclusive "value
pack" e.g., scratch
coat and UV
- Free shipping
or delivery
- Frequent
shopper incentives Reducing risks
- Customer
satisfaction warranty
- Product
warranties
- Market your
credentials, length in business, famous customers, etc.
OTHER SPECIFICS TO ADD VALUE
To succeed in the pri/2020Exams/value niche, optical retailers must:
- Narrow
their market segment to remain credible to that target customer.
- Make pricing
obvious and keep it simple.
- Source private-label
frames.
- Offer generic
lenses as well as premium brands and explain their similarities
as well as differences.
- Make your
stores exciting. Row after row of frame racks isn't interesting.
- Hire enthusiastic
sales personnel.
- Feature
price-sensitive eyewear; don't hide it in the dark. Present
it as you do the rest of your products.
- Commit
your positioning and pricing strategy to paper.
Remember you can't be all things to all people. It's all about
fulfilling expectations.
|