Loss Leaders and the Old Bait and Switch
Loss Leaders and the Old Bait and Switch
Go Daddy is in the news right now due to their consideration of global expansion. One of the ways they have become so successful is that they utilized a marketing technique where they offered a “loss leader”. For those who have not taken a business course, this term may not be familiar. The Business Dictionary defines a loss leader as a, “Good or service advertised and sold at below cost price. Its purpose is to bring in (lead) customers in the retail store (usually a supermarket) on the assumption that, once inside the store, the customers will be stimulated to buy full priced items as well.”
In Go Daddy’s case, they charged customers only around $10 to register domains while their competition charged closer to $35. The Arizona Republic reported, “Then, they were able to capitalize on that by figuring out that domain names are a loss leader or a low margin item, and the way you really make money in the business is not with the domain names, but it’s with everything else that people buy with them.”
How does a loss leader differ from what people refer to as the “old bait and switch”? First of all, the old bait and switch is considered fraud. “Customers are “baited” by advertising for a product or service at a low price; then customers discover that the advertised good is not available and are “switched” to a costlier product.” This is considered false advertising.
The use of loss leaders is a smart marketing move because it gives customers what they want at a lower price and allows companies to make more money on any additional items purchased. The old bait and switch is illegal and causes a loss of business in the end through word of mouth about shady practices.  Â
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Importance of Customer Relationship Management (CRM)
Anyone who has taken a business course has probably seen the acronym CRM. CRM stands for Customer Relationship Management and refers to ways of keeping track of interactions with customers. However, it is much more than that. Bain.com does a nice job of defining CRM:  “Customer Relationship Management (CRM) is a process companies use to understand their customer groups and respond quickly—and at times, instantly—to shifting customer desires. CRM technology allows firms to collect and manage large amounts of customer data and then carry out strategies based on that information. Data collected through focused CRM initiatives help firms solve specific problems throughout their customer relationship cycle—the chain of activities from the initial targeting of customers to efforts to win them back for more. CRM data also provide companies with important new insights into customers’ needs and behaviors, allowing them to tailor products to targeted customer segments. Information gathered through CRM programs often generates solutions to problems outside a company’s marketing functions, such as supply chain management and new product development.”
Forward-thinking companies must learn to embrace CRM to remain competitive. An article in BusinessBalls.com pointed out, “The ultimate purpose of CRM, like any organizational initiative, is to increase profit. In the case of CRM this is achieved mainly by providing a better service to your customers than your competitors. CRM not only improves the service to customers though; a good CRM capability will also reduce costs, wastage, and complaints.”
In the business world, Pareto’s Principle is often cited.   This principle states that 80% of effects come from 20% of the causes.  This has been translated to:  companies obtain 80% of their business from 20% of their clients.  As the BusinessBalls.com article pointed out this also means:
- 20% of customers account for 80% of your turnover
- 20% of customers account for 80% of your profits
- 20% of customers account for 80% of your service and supply problems
In order to avoid wasting time and energy, relationship building is critical. To develop these relationships, it is important to have a strong CRM system.  There are plenty of web-based CRMs. A popular cloud-based CRM is available through Salesforce.com. This popular system boasts ease of use stating, “Using Salesforce CRM is as easy as buying a book on Amazon.com. That means your employees will actually use it, so it will be a more effective tool for your business.”
Apps are popping up all over to help with CRM. Salesforce.com has their own that is good for a sales-based industry. SmallBusinessTrends.com did a nice review of some other top CRM apps that are useful for small businesses.
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Marketers Target Impatient Customers through Smartphone Quick Response QR Codes
Quick Response or QR codes are the latest bar code system that allows customers to use their smartphones to obtain discounts, gather information and even order products ahead of time so that they are ready upon their arrival. For an instant gratification generation, these new codes can connect customers to products faster than ever before.
Companies are putting these codes in their advertisements and on their products so that customers can scan them with their smartphones and gather more information, find out about discounts or even order the product. Although these codes aren’t that new, companies are starting to use them more due to the increased frequency of consumers using smartphones.
It’s simple to install an app on a phone. In fact some even come with the app pre-installed. Wall Street Journal reported, “Scanby Inc., a New York company that develops and manages QR codes, estimates that 30 million people in the U.S. have a code-reader app on their phone.”
Companies like Ethical Bean are taking advantage of the code to get their coffee products into their customers’ hands more quickly. Customers simply need to order their coffee through the use of these apps and it will be ready when they arrive to pick it up.
These apps can also give more information about the products being purchased. Customers can find out recipes, ingredients and more. The Wall Street Journal had some statistics about the use of these codes:
- 32% of consumers in a recent survey said they’ve used a QR code
- 70% plan to use QR code again or for the first time
- 53% are motivated to use it by getting a coupon, discount or deal
- 52% are motivated to use it by getting more information