Sleight of Hand vs. True Differentiation

I’ve discussed a few shady practices today – not because I want you to emulate them, but because you need to be aware. You need to recognize the human psychology in operation here – for example you need to recognize that most people would rather be tricked into thinking he improved his sound than actually have to think. That’s what the Emperor’s New Clothes story is all about. If you sell a “better mousetrap” you need to be fully aware of the extreme aversion people can have to the truth.

Now if the world were a truly rational, logical place, and if everyone were like Mr. Spock, there would only be about ten different amplifiers on the market, instead of thousands.

Carver’s marketing challenge was: In a world of look-alike competitors, most of which make very good products, most of which will satisfy the customer’s need to have a reliable, powerful amplifier, how do you stand out? How do you make yourself memorable? How do you tell a story that’s different?

If you look at what they and other clever marketers have done, here’s the answer:

• You build the product around a technology that naturally lends itself to a good story

• The story can be about very ordinary, mundane components on the circuit board (“the Magnetic Field Coil”) that nobody else bothers to discuss. They can even be the same components that everyone else is using

• You use dramatic words and language: “Music’s stunning impact and realism” “While these waveforms last less than 1/100th of a second, they form the keen edge of musical reality”

• You build the story around an interesting person

• You portray yourself as a friend of the consumer and guardian of the public good, in a world of charlatans and enemies

• You explain “big picture” aspects of your design without resorting to mind-numbing detail – just enough to create a sense of mystique and wonder

• It’s not just enough here that an amp that would have weighed 50 pounds now weighs 20 pounds – an entire story is told to dramatize it. The feature becomes the benefit, because it resides in the imagination of the buyer

• Talk about how the product is assembled

• Talk about the quality control procedures that are used

• Talk about the hand-selection of the components

• Discuss the extensive list of criteria that were developed for the design

• Dramatize the virtues of the place where the product comes from – whether it’s the reliable farm-hands-turned-craftsmen in Davenport, Iowa or the ancient Chinese herbs from Shangri- La

• Describe the software and supercomputers that were used to develop the product. Talk about how many thousands of man-years it would have taken if the calculations were done by hand

• Put the thing in a beautiful hand-rubbed rosewood box

• I remember an exotic CD player that described the “Spline Curves” (a concept from advanced mathematics), used to ensure that the Digital-To-Analog Converter processed signals with pristine accuracy

• Issue a public challenge to other manufacturers, customers or members of the press

• Host “wine and cheese parties” – one high-end dealer in town holds special receptions every few months, just for “Friends of the Store”

• Use simple, clear charts and graphs that carry their weight and prove your point

• “The Real Winner is You” – the customer always has to win in the end. Never forget that!

Carver turns high-end snobbery on its head

Bob Carver is one of the most brilliant audio marketers of all time. In the early 1970’s he started a company called Phase Linear, selling 700 watt amps in what was then a 70-watt world. After Phase Linear he started Carver Corporation, which produced a steady stream of new products. Most of Carver’s innovations fell in the category of genuinely useful, as opposed to gimmicky, and they were aimed at the “Mid-Fi” market, i.e. people who spent $2,500 on their audio system, as opposed to the high end $25,000 crowd.

Bob knew what all real audio engineers know: That those minute differences between amplifiers that are audible are merely the cause of very small disproportions of bass, midrange and treble, and when you equalize those, the remaining audible differences disappear entirely.

Knowing that his market was the Mid-Fi crowd, not the high-end crowd, he approached a hi-fi magazine, Stereophile. He gave them a challenge: He said that he was coming out with a new amp, and they could pick any other amp of their choice and he would make his new amp sound identical to the one they chose, within 48 hours. Didn’t matter how expensive, what brand, or anything else.

And he promised that he would make all the mods within his own hotel room near the Stereophile offices, far away from his lab and his company headquarters.

They took the bait.

Carver won. The egotistical, golden-eared editors of this magazine could not hear the difference between Carver’s new amp and the extremely expensive rival. They would throw the switch and nobody could accurately report which amp they were listening to.

So Carver started publicizing his $800 amp and telling the world how its sound was indistinguishable from something that cost five times as much. It made great ad copy, as you can see on the next couple of pages.

The story was published, then letters started pouring in from angry readers, insulted that any $800 amp could be equal to a $4000 one. The staff at Stereophile realized they’d been had. (Ironically, Carver honestly and truthfully exposed their game.) Their ears blushed crimson and they had to do major damage control. You see, high-end magazines have a fiduciary responsibility to their advertisers to maintain the illusion. If you read the buyer’s guides, you’ll notice that almost all the “A” grade components are more expensive than the “B” grade components, which are always more expensive than the “C” grade components. There’s a reason for this, you understand. This illusion had been shattered and they had to put out the fire fast.

So they started back-pedaling, explaining to readers in great detail how the setup had been faulty, the switches Carver used were of lousy quality, the listening room bad, the circumstances unscientific and the listeners functioning in sub-optimal circumstances. But Bob had scored his victory, and this new amp was a commercial success. Observe how cleverly these Carver ads are written. They do a masterful job of telling this story. Take a look at some of the gems in the copy:

• In these ads, Bob Carver is God. Most companies do a poor job of using a personality to sell a piece of equipment, but this is a five-star case study• The graphs, charts and photos support the copy and carry their own weight – they increase the interest of the ad.

• Ireat sound bytes: “Audiophiles, critics and ultimately other manufacturers have accepted the wisdom of Bob Carver’s innovative approach to delivering power in musical terms”…“And yet, according to some of the most discriminating audiophiles in the world, Bob’s new design is their sonic equal.”

• Note the patented magnetic field coil. The greatest value of a patent is not in having it, but in telling consumers you have it.

• “Out of respect, ethics (and even a little bit of awe), neither Stereophile Magazine nor Carver will divulge the name of the legendary “world class” mono vacuum tube amplifiers that were selected as the M-1.0t’s contender”

I would only change a couple of things in this ad – First, I’d use a more benefit-driven headline.

Like “20 Pound, $800 Amp Humiliates 100 Pound, $4000 Monoblocks.” And I’d put in a stronger call to action. The reason they don’t, presumably, is that they sell this product through dealers. But they should at least have a phone number to call so you can find out who the nearest dealer is.

Aside from the Carver story itself, there’s a lot you can take from this. First, people in the audio business – which is largely a commodity business – have successfully differentiated their products from competitors’ for years by focusing on minute details of the design, the components used in the design, and the philosophy of the design. This is largely missing from most companies’ marketing.

Second, giving a challenge to the press is a clever PR technique. What challenge can you dish out to the press?

Third, this product is now surrounded by a dramatic story. This is an amplifier whose birth was accompanied by challenge and fanfare. Not a trivial accomplishment!

The Audio Business: Mostly Commodities, Very Cleverly Disguised

Vendors in the audio industry are among the very best, of any industry out there, at disguising the fact that much of the things they sell sound exactly the same, and perform exactly the same as their competitors.

Audio is an enthusiast’s sport. And being that it’s a medium for music, it has the ability to access people at a deep emotional level. Audiophiles are fanatics. People who love music, and the equipment that reproduces music, have an incurable attachment and fascination.

I will go even further and say that the experience of listening to music crosses over into the spiritual realm. It touches peoples’ higher aspirations in ways that we cannot easily verbalize. We are very emotional about our music and our music systems.

I’m in a somewhat unique position because I’ve pursued both the engineering disciplines and marketing disciplines as far as I could go. I know what’s smoke and mirrors in the audio business and what is not. And the truth is that most of it is smoke and mirrors. Perception, not reality.

Some examples: (Sorry if this offends you – just the facts, ma’am):

• Expensive speaker cables, and really any kind of expensive audio cables or connectors – snake oil. They make virtually no difference. To put it another way, buying a “better” cable is the least effective place to invest your money.

• The differences between one amplifier and another, at least when they’re operating within their normal power capabilities, are miniscule. Vanishingly small. A $5000 amplifier is rarely better than a $500 amplifier, and as often as not is actually inferior.

• The same can be said of CD players, capacitors and many other passive components.

• People religiously believe otherwise, though. They devoutly believe that they hear dramatic, night-and-day differences between cables, amplifiers, CD players, digital-to-analog converters, etc etc. Fact: you can do scientific A/B comparisons and conclusively prove that they cannot hear these differences. But… when a salesman persuades them that they can hear a difference, the ear is fooled and the ego gets involved. The hottest running debates in audio magazines have always been about such issues.

• The world of high-end audio has produced an endless stream of bizarre, flim-flam products to scratch the enthusiast itch, in pursuit of audio nirvana: Tuning dots – little round stickers the size of a hole punch with adhesive on one side – you stick them on stuff and they magically make it sound better; Machined steel cones and mounts for components and speakers; “Tuning blocks” – special blocks of wood that make your components sound better when you put them on top;

Compact Discs with pure gold substrate instead of aluminum (everyone knows that gold 1’s and 0’s sound better than silver 1’s and 0’s, right?); for a long time there was lore going around that if you smeared Bull Semen on your CD’s, it would make them sound better.

• People will get angry with you if you tell them that they could have used a $5 cable instead of a $500 cable, or that the Bull Semen improvement is just their imagination. They will curse you and call you the antichrist. They want to believe. After they’ve spent the money, they do not want to concede that they’ve been had.

• For the person who wishes to continue to believe the siren song of the snake oil salesman, a plethora of rationalizations are available. Choose the one you like and believe as you wish.

• If you take a close look at all of the above examples, they all involve making inexpensive, trivia

modifications that make no improvement, and fooling people into thinking they do improve the sound. They involve no insight into deep problems, no knowledge, no science, no careful application of wisdom or experience – just the swiping of the credit card. Note that they’re all high-margin items.

• On the other hand, there are lots of things you can do to improve the sound of an audio system.

But they all require some combination of money, and expertise and insight as to where to spend it and how to apply it. For example you can make enormous improvements by adjusting the draperies and furniture in the room, and the location of the speakers. It need not be expensive to do this, but you will need an experienced technician with some sophisticated measurement equipment. Not easy, not cookie cutter. You rarely see people spend their money on anything valid like this. The Bull Semen is easier to sell – and to buy.

With that in mind, here’s an example of a brilliant move on the part of Linn, a high-end audio manufacturer in Scotland.

Every stereo shop has a special room for the high end equipment. And the top lines carried by that dealer compete fiercely for attention in that room.

My friend Jim Heydt, the salesman who actually inspired me to build that first pair of speakers, once mentioned that the biggest competition for any brand of equipment is everything else that’s being sold in the very same store – much more than the other brands across town. Somebody at Linn was apparently frustrated that their speakers had to compete with other brands, so they came up with “The Single Speaker Demonstration” for their dealers.

The shtick goes like this: The existence of any other speaker in a room corrupts the sound and the listener experience. Even a telephone, by its very presence, will distort the sound and make the listener’s judgment suspect and unnatural. Therefore only one speaker can be demonstrated at any one time; if you switch speakers, you must lug the old ones out of the room before new ones are brought in.

So they went out to all their dealers and showed this to them. They would put a pair of speakers in the room and play them – then they’d bring a telephone in and out of the room. “Mark, can you hear the difference the presence of this little telephone makes?” Mark thinks for a minute and says “Play that again, would you?” So they do another trial. “Yeah, Steve, now I hear exactly what you’re talking about.

The midrange is muddier with the telephone in the room. Wow, that’s amazing!”

The factory guy has successfully done a bit of psycho-manipulation on the dealer, who will in turn do this to many dozens of unsuspecting customers. The light has now dawned, and the true believer, now in possession of a great truth, goes forth to unleash this truth on the world.

Now the factory guy pulls a sticker out of his notebook – it’s a “Single Speaker Demonstration” sticker – and affixes it to the front door of the retail store. Now this dealer is certified as a “Single Speaker Demonstration Room” dealer, and Linn’s speakers are, of course, always the default speakers in this special room. Right?

So Linn publishes a list of dealers who conform to this now-higher standard of demonstrating audio equipment.

And they run ads like the one you see here.

Now… does having another pair of speakers in the room change the sound? Yes, it theoretically does. However, the difference is microscopically small (especially compared to the rattling drywall, the air conditioner, and whatever else is going on).

Here’s what’s important though: it is now literally impossible for the customer to make an accurate, honest,  side-by-side comparison. Your hearing is extremely susceptible to suggestion. And the customers’ malleable perceptions are vastly more vulnerable to the salesman’s manipulation than they were before. The salesman can now tell customers what he wants them to hear, instead of flipping a switch from A to B and letting them hear it for themselves.

Remember: so long as Mark believes he hears a difference, that’s all that matters to Linn. Linn has successfully shoved the competition, and the listener’s objective judgment, out of the way.

Nobody said this was going to be a fair fight!

“Nearly everything I know about marketing and advertising, I learned in the Audio Business”

Are you in a commodity business, looking for a way to differentiate yourself from others? Do you have a neat new technology or idea you’re trying to get customers to accept? Are you in need of a new twist on an old idea? Do you want to wrap an interesting, intriguing story around a new innovation?

Look no further than the audio business for many superb case studies of what to do.

Did you read the article “Enthusiasts write the best ads” in my marketing system toolkit? You can learn a lot about clever marketing in the audio biz. Not long ago it struck me that most of my intuition about writing ads, advertorials, articles and persuasive documents, and much of my skill in creating hooks and advertising ideas, comes from the stereo magazines I was reading when I was a teenager.

I just got done visiting the National Manufacturing Week trade show in Chicago. Dominant impression: These people are a bunch of marketing morons. Totally a-cluistic. Without clue. Hopeless, really. I’d take any one of my subscribers and pit you against almost any marketing manager at that show, and there would be no contest. And I would similarly characterize most vendors in the audio industry as vastly superior marketers to the B2B marketers I’ve seen.

As you’ll read on the back page, my decision at the insecure age of 13 to build a pair of speakers was a pivotal decision that has shaped everything I’ve done since.

Back when I was in junior high, every few weeks I’d get on the bus, go downtown and visit all the stereo shops and learn everything I possibly could. I must have been extremely annoying to some of the sales people, because I would appear once every month or so, occupy an hour of their time, pummeling them with questions about every possible aspect of speakers, amplifiers, tape decks, turntables and decibels – then depart without spending a single thin dime.

I distinctly remember one guy, very helpful, who advised, “You should read everything you can get your hands on.” I took that quite literally. I have circled more numbers on readers service cards than anyone else on the planet. Two thirds of the drawers in my dresser in my bedroom were devoted to manufacturer’s literature, brochures and catalogs.

In retrospect it’s no surprise whatsoever that I’m in the business of creating persuasive manufacturer’s literature today. And it’s no surprise that I’m good at it. (I also shudder to think that most of what I thought I knew about acoustics at the time had been written by copywriters and marketing departments.)

Well having marketers in charge of consumer education is tantamount to having the dogs guard the ham sandwiches. But since you are the marketer of your business and since nobody else is educating your customers, and because they are unable and/or unwilling to educate themselves, then you are the educator.

And the ham sandwiches are in your care.

So today I’m going to take you back to the mid-1980’s and show you some of the best examples of marketing and advertising in the audio industry. And I’m going to show you exactly how the ham sandwiches were guarded, or in some cases, rapaciously consumed by hungry dogs.

ra·pa·cious (r -p sh s) adj.

1. Taking by force; plundering.

2. Greedy; ravenous. See Synonyms at voracious.

3. Subsisting on live prey.

Parenting is a tunnel of chaos

Dear Friends,

2003 has been a year of intense contrasts, achievements and sorrows, puzzles solved and ironies pondered. Images of our life as we wrap up this new year…

~

Parenting is a tunnel of chaos. Never ends. Kids’ favorite game is 1-2-3 Smash. It’s played on mama’s waterbed, and anyone with a decent command of the English language and figure out how it’s played. Normally ends with someone crying, but they always want to play it again.

They like playing it with daddy, but they’ve learned to play it unsupervised. It’s always good for kids to be selfsufficient, you know.

Tannah’s 7, blossoming into a confident young lady: Art, cello recital, ice skating, Awana, martial arts. Summer camp in Nebraska with swimming and horses every day.

Learning that directing plays is hard work and definitely requires the cooperation of others.

Cuyler: a living picture of live combat. Guns, swords, Tae Kwon Do, moon boots and umbrellas. “Daddy, I was playing swords with Jack and he cut my finger. Make him stop!” Hasn’t figured out that swords are a two-way street yet. Give him some time.

Caden just turned 3½ . Everybody loves Caden. Matter of fact, just today at lunch (Buzz Café), Caden scooped up a new girlfriend. She’s 23 and she goes to DePaul. I told Caden that it’s hard to find parking there, but I don’t think that’ll deter him.

~

Flying over the Sahara desert, the moon above and total blackness below. Time for the annual reality check, a trip to see how the other half lives…

The sun shines bright in Mozambique. Standing up in the back of a pickup truck, the wind in my face, we race through the wild beauty of the African Savannah… mobbed by children at the Ray of Light school, they radiate love whether they’re sick or healthy. Women with babies in tow line up around a mud hut in Mafarinha. Robin, and RN from Minnesota, treats them, battling AIDS, malaria, parasites, malnutrition and witch doctors.

10-4 on the Reality Check, Sir. Life at home is Disneyland.

Thriving business. Echoes of applause in hotel ballrooms and the sound of five million mouse clicks… Homage paid to the Big Mouse. Lunches, dinners and Theater On The Lake. If you hear me gripin’ – please slap me.

~

Starbucks, 8:30am. About once a month. Venti decaf with cream. Intense discussions, knowing our time together might be cut short. Conversations take on an increasingly spiritual bent as days pass.

“I love you, man.”

“I love you too, Jim. In a non-sexual way, of course.”

“You Jagoff.”

My close buddy Jim Cleary needs an organ transplant. He gathers 18 sharp friends – insurance experts, legal minds, publicity hounds – to wage war, because his insurance refuses to pay.

Opponent relents, Jim goes off to Pittsburgh for an operation and a grueling recovery. It’s April, and I visit.

His abdomen is a war zone, he’s got tubes going in and out all over the place, but he’s fighting, fighting, fighting.

Steadily improving, engaged to be married to his sweetheart Maura next Saturday. Saturday comes and goes…

Sad news arrives. Indian summer sky. Women and men in black on a pristine September day. We pay tribute to the greatest fighter we know. Jimmy is laid to rest next to his father. Emmylou Harris is in my head:

It don’t matter where you bury me I’ll be home and I’ll be free It don’t matter where I lay

All my sins be washed away

~

Police officer pulls up beside me and motions for me to roll down my window. “Are you lost? This is a dangerous neighborhood.” “Yes, I’m here to pick up the kids. I take ‘em to church every week.”

So here I am on the West Side, taking five kids to the Wednesday night gig. Anthony, Marcus, Drea, Isaiah, little JoJo and me, we’re Ebony and Ivory, man.

Anthony says to me, “My friends say if you take us to Oak Park, we’ll get shot up. They wanna make a big deal ‘cuz we’re black and you’re white.” “Well, Anthony, guess what – my friends in Oak Park think that if I come to your neighborhood, I’ll get shot up, too. So I guess all our friends are wrong.”

~

“Hey Laura, this wooziness you’ve got lately –maybe you’re with child?” A couple of weeks later: “Well, Perry, God’s got a sense of humor. I’m pregnant.”

We do jazz improvisation around here. No Problem, baby.

In the words of Tiny Tim: “God Bless Us, Every One.” All six of us.

Merry Christmas and Happy 2004, Perry, Laura, Tannah, Cuyler, & Caden

Parting Thought For the Holiday Season

There are two kinds of people in the world: Those who love the holidays, and those who find the holidays hectic, annoying and frustrating, for whatever reason. Now I happen to fall into the former category. But whether you like visiting the relatives during Christmas or if you wish you never had to see uncle Ned again, I’d like to pass along a thought that I think all of us can agree with. It’s by Thomas Friedman, once again from his profoundly insightful book The Lexus and the Olive Tree:

“I grew up in a small suburb of Minneapolis. You had to go at least an hour from my house to find trouble. On the Internet, trouble is just a few mouse clicks away. You can wander into a virtual neo-Nazi beer hall or pornographer’s library, hack the NASA computers or roam the Sorbonne library, and no one is there to stop or direct you. To put it another way, the more the Internet makes us all broadcasters, all researchers, all consumers and all retailers, and, alas, all potential bomb makers, the more critical it is that our teachers, parents and communities are still making us all citizens. That’s work that can only be done off-line.

“The Internet and computers are just tools—wonderful tools that can extend and expand one’s reach enormously. But you still need to know what to grasp and how to get the best out of them. These tools can help you think, but they can’t make you smart. They can browse and search but they can’t judge. They can enable you to interact far and wide, but they teach you nothing about how to be a good neighbor. They can empower you to touch the lives of many people, but they can’t tell you what to say at a PTA meeting, or why to say it.

“That’s the parenting paradox of the Internet. The best thing parents can do to prepare their kids for the Internet age is not to teach them more whiz-bang, high-tech skills, or buy their kids faster modems and computers, but rather to stress more old-fashioned fundamentals. The faster your kids’ modems, the faster they can get online, the stronger must be their own personal software, if you want to see them thrive. And personal software can only be built the old-fashioned way: by stressing reading, writing and arithmetic, church, synagogue, temple, mosque and family.

“These things can’t be downloaded from the Internet; they can only be uploaded by parents and teachers, priests and rabbis. And that’s why if I had one wish it would be that every modem that is sold would come with a Surgeon General’s warning on it. It would say: “Judgment Not Included.” You have to provide that yourself—the old fashioned way from under the olive tree.”

Amen to that. PSM

P.S.: I hate Disney, too – not just Kenny G. But I’ll save that rant for another issue…

Subscription info: $19.95/month, every 2nd or 3rd month is a cool audio CD.

Inquiries, rants & raves: Email news@perrymarshall.com

 

Globalization = “Winner Takes All” on Steroids

Because of the Internet, the fact that you can find any supplier in the world – and the fact that someone can start a business and take it worldwide just as fast as they can throw up a website – means that anyone can be your competitor.

It means that you can be anyone else’s competitor.

It also means that winners get to take the disproportionate rewards from a global marketplace, not just a local or national one.

Case in point: Last month’s newsletter was my interview with Ken McCarthy on Advanced Strategies for Making Your Website Pay. I talked about Joe Kleine, who was on the Chicago Bulls team in 1996. He was making the NBA minimum of $272,250 per year, while Michael Jordan was making $80 million a year. Why is there a 300:1 difference in pay? Because Michael Jordan was only slightly better than everyone else.

Simply put, Michael Jordan drives sales of basketballs, tennis shoes, T-shirts, soft drinks and toothpaste in Paris, Barcelona, Taipei, Tokyo, Melbourne, and Davenport Iowa. Joe Kleine doesn’t.

In the words of Thomas Friedman, author of The Lexus and the Olive Tree: “The gap between first place and second place grows larger, and the gap between first place and last place becomes staggering. In many fields there is rarely one winner, but those near the top get a disproportionate share. The potential market for any good or service, for any singer or songwriter, for any author or actor, for any doctor or lawyer, for any athlete or academic, now extends from one end of the world to the other. This unprecedented openness and opportunity for mobility enables, encourages and in many ways requires firms, industries and professionals to try to cover this worldwide market – otherwise somebody else will. And when one of these players emerges as the winner – as “The Accounting Firm”, “The Doctor”, “The Actor”, “The Lawyer”, “The Singer”, “The Salesman”, “The Basketball Player”, “The Man” or “The Woman” in any particular field, that person can potentially win not only the United States or Europe, not only Japan or China. He or she can reap enormous profits and royalties from everywhere else at once.”

Now here’s what I want you to do about this: For almost everyone who reads this newsletter, the name of the game is not being The Doctor. It’s about being The Internal Medicine Specialist for Patients who are 60 years old and older. It’s not about being The Lawyer. It’s about being The Attorney for Industrial and Environmental Tort Law. You need to super-specialize, so that even on the mighty Internet, you are a big fish in a little pond.

Another recommendation for those of you in exclusively local businesses: Identify some product or service that you can sell nationally or internationally, so that you can take full advantage of the Internet. Those who read this newsletter have access to more practical Internet Marketing intelligence than 99.5% of the rest of the world, and in the land of the blind, the man with one eye gets to be king. What a natural and powerful way to diversify your business and gain national and international recognition!

And a corollary for those of you in national or international businesses: Is there a high-end version of what you deliver at a distance, that people could come to you for, at a premium price? It’s perhaps accidental, but not coincidental, that most of my full-tilt consulting clients are well within driving distance of my office here in Chicago. People will pay more to see you in person.

Huge implications of the 80/20 rule pricing for service-oriented businesses

Listen up: Somebody’s going to make a lot of money from what I’m about to tell you right now.

(Might as well be you.)

The pricing of services, especially in niches, is extremely elastic. This has a lot to do with the fact that people take services very seriously (“Big-Ass Fans” is wildly successful, but “Big-Ass HVAC Contractors” would go belly up before they ever got a single customer). Service businesses are more intrinsically personality driven than product business.

So the pricing strategy you use for services needs to be much, much different.

For example, if you sell a $20,000 car, then when you add the Mop&Glo and the extended warranty and the high-end stereo and the espresso machine, maybe the price goes up to $30,000.

Upsells on hard products are usually very incremental, and only a fraction of the base price.

Services, information and advice are different.

When you sell services and information, the variation in price can change by a factor of 10 or 100 or 1000, depending on how much of you the customer gets.

Let’s say you sell a piece of software. Your basic version costs $200.

Most software companies are going to have a $200 version, a $350 version and a $500

version – something like that. Or maybe they have a complex per-seat licensing deal.

Whatever.

But here’s how I’d approach it: I’d have a $200 version, and then about five or six upgrades that are all 2-3X more expensive than the previous. The product lineup would look something like this:

• Basic version with online support is $200

• Deluxe is $500 with online support

• Deluxe with weekly training teleconference calls is $1000

• Deluxe, with weekly training teleconference calls and remote installation & service done by your staff via the Internet, $2500

• Deluxe, with online installation & service, 8-5 live phone support, and the weekly training teleconference calls, $5000

• Deluxe, with on-site installation & service, 24 hour live phone support including a special “911 hotline” for dire emergencies, plus the weekly teleconference calls, $10,000

• Presidential Platinum Deluxe, with on-site installation & service, redundant servers, 24 hour live phone support and 911 hotline, six weeks of intensive hands-on, on-site training and a direct line to the president of the company in case there are any problems, plus the weekly teleconference calls, $25,000.

Now if you build your sales process and story according to this “logarithmic” pricing model, where upsells are multiples instead of linear increments, here’s what you’ll discover:

1) You will make roughly equal amounts of revenue from every single price level. In other words, you sell about as much dollar volume of $10,000 packages as $200 packages. But you only have to deal with 1/50th the number of customers. Big money from small numbers.

2) You will extract maximum sales from your marketplace and take full advantage of the extreme pricing elasticity that exists in the market

3) You will almost invariably find that your high end customers are more pleasant and less troublesome than your low-end customers

4) You can fire or downgrade problem customers

5) It’s easier for you to prioritize who gets the majority of your time and attention – you just see which kind of customer they are.

6) Useful strategy: It’s perfectly OK to have a super-duper deluxe version that hardly anyone actually buys. You could have the $75,000 version that no one purchases from you, but some customers still wish they could have it. It makes it easier to sell the $25,000 version. Tom Orent, a business coach for Cosmetic Surgery doctors, does this with his $72,000 coaching program. Nobody’s ever bought it yet, but it makes his $48,000 program more palatable.

My own Google AdWords tools are sold according this pricing model. The least expensive version at www.perrymarshall.com/google is $49. The most expensive package (the “I do it for you” turn key deal) is $4900, and there are four price points in between. And what I’m telling you here is based on my own personal experience. (I don’t have any packages that nobody’s bought, BTW – in fact I have one client that’s more or less on a $49,000 plan.) Don’t overlook the fact that in addition to all that, there’s a free sampler, a 5-day email course, which introduces readers to the whole thing.

That’s the very top of the funnel, the lead generation part.

This reflects the reality that some people will take a freebie but never buy. Some will buy a $49 or $97 e-book but never go any further. Some will pay extra for a hard copy. Some will pay extra for telecoaching in a group setting. Some will pay for personal coaching, one on one. Some will pay someone else to do everything for them.

You need to break things down in terms of “how much of me are my customers willing to consume, depending on who they are” and structure your offerings accordingly.

You will most easily take advantage of this by adding “super deluxe” and “super duper deluxe” versions of what you sell. You will make vastly disproportionate levels of profit from very small portions of your customer database. Also, let’s go back to the example of being a software company – most software companies can dramatically improve their cash flow by offering high end services.

Yes, it slows product development when your programmers are doing client work, and for this reason I actually refuse most consulting invitations now – I’m just too busy. But it’s better to offer it and turn down the order than to not have the product and be hungry for cash.

So think very carefully about how you can add a Presidential Super Platinum Deluxe version of what you sell. It’s a terrific cash-flow slack adjuster.

Teleseminar + ASK Campaign

Combining a teleseminar with a survey mechanism is a killer shortcut for figuring out what your customers want, and quickly creating and developing the content that they want, all at the same time.

Let’s take a different angle with this windshield wiper example. Let’s say you make car parts and you’ve got 50 dealers all over the country. You’ve done the ASK campaign with your customers, you’ve developed your new product, and now you want the dealers to engage with this product, stock it and sell it. So you send an email to all your dealers, announcing a teleseminar it says “On January 10 at 10am Central time, we’re holding a teleseminar on “How to get easy $20.00 upsells with The New RainMaster Windshield Wipers – including some powerful success stories from other dealers. To register, click here…”

 

The registration form has a field that says “What’s your biggest question? A prize will be awarded for the best question” and you’ll probably get 10-30% of them to ask a question.

You can organize your entire teleseminar around those questions. And if you want to, you can open up the lines at the end and have open Q&A.

One of the aspects of teleseminars that makes them so effective is the community feel you can create with them. If the audience is 50 people or less, you can open the lines up and callers can interact with each other. Sometimes the conversation takes on a life of its own.

Eagle Teleconferencing is the provider I use for doing teleseminars, and they offer essentially unlimited use for a flat monthly fee. Their number is 217-322-3300.

Sometimes the trickiest part of the sales process is bridging the gap between the mildly interested prospect and the hot prospect. If you’re generating leads but having trouble closing sales, a combination of sales coaching, probing your customers to find the real hot spots, and/or teleseminars will most likely give you the breakthrough you’re looking for.

The 80/20 Rule, Revisited: How to get a LOT from a little Last spring I did a members-only teleseminar on one of the most important business books I’ve read in a long, long time: “The 80/20 Principle” by Richard Koch.

This book explores the hugely disproportionate relationship between effort and results, which most people plainly and simply ignore. But there’s not a business on the planet that can’t benefit from more awareness of this.

The following are some very important points that you’ll do well to incorporate into your own view of the world and of your business:

• 80% of your sales come from 20% of your customers. Market accordingly.

• 95% of your profits come from a mere 5% of your customers. Sell disproportionately.

• Let me repeat, just in case you missed that: 95% of your profits come from 5% of your customers! The implication is that you need to be extremely diligent about communicating with that top 5%. Very diligent. It’s worth writing that newsletter just for that handful who make that huge contribution to your bottom line.

• If you take all of the people in your universe, from casual prospects all the way to your single biggest customer, they almost invariably fall into a very predictable pattern – a pyramid, if you will, that has lots of very low profit, low-valuable customers at the bottom and a few high value customers at the top. You gain huge leverage by recognizing the disproportionate importance of the small number at the top.

• Have you ever been standing at a counter, talking to a retail sales person about an expensive purchase, and the phone rings? What do they do? They interrupt you and answer the phone. That is a blatant violation of the 80/20 rule. You, who are there in the flesh, are almost undoubtedly more important than a mere caller, but somehow we’ve been conditioned to answer ringing phones.

• There is an exponential leverage in the extreme end of that 80/20 curve. There’s a top 20% of the top 20%. There’s a top 20% of the top 20% of the top 20%. Deciding where to allocate your finite resources for 2004? Think about those tip-top ends of the spectrum.

• Lead generation, by definition, deals with the bottom 80% – getting people in the door. You must have a multi-step process that sifts and sorts people once they’ve made it into the top of the funnel. Refer to the earlier section about sales training and teleseminars for ideas about how to use that. If you invite all of your unconverted prospects to participate in a teleseminar, the ones who show up are automatically the top 20% of the bottom 80%. The mere fact that they registered to be on the call (even if some never show up) is, itself, an indication that they’re still more worthy of your time than the ones that never bothered to register.

• Every “hoop” in your sales process is a way of applying an 80/20 filter to the crowd. You’ll be amazed at how often the ratio is, in fact, 80/20.

• Also understand that the numbers 80 and 20 are just a generalization. Sometimes it’s 95/5. Sometimes it’s 99/1.

• An automated sales process is a machine that applies multiple 80/20 filters to a large group of people, winnows them down, and delivers the most worthy, most responsive, and bestmatched customers to you on a silver platter, so that you can close them and do business with them at maximum profit.

Teleseminars as Bridge-The-Sales-Gap Tools

Live teleseminars are a very powerful tool for moving prospective customers from “lukewarm” to “hot and ready to buy.” I use them extensively, and a lot of promoters, gurus and consultants use them. But not very many “traditional industry” people do. This is a mistake, because teleseminars are powerful. You can communicate to dozens, hundreds or even thousands of people – I’ve done several teleseminars that had 500, 1000 people or more, and it’s just a killer sales tool. People can listen to you, they can hear your voice, and you can talk about things “off the top of your head” without usually needing to meticulously script every last detail.

Even if you have no intention of closing sales over the phone, or asking for orders on the teleseminar, it’s one of the best things you can offer to your unconverted leads.