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In 1998, Alan Hess published a very humorous take on what would happen if airlines sold paint. This Christmas, retailers of all products (not just paint) may want to seriously ask themselves if they should be running their business like an airline.
Dun & Bradstreet’s National Business Expectation Survey just revealed that expectations for inventory levels have risen to their highest point since 2000. For retailers, this Christmas is going to be just as much about inventory management as it is about pricing management, which is something airlines have mastered since American Airlines first introduced the practice of revenue management 40 years ago.
Most airline passengers have now been conditioned that if they want the cheapest airfare, they have to book early. As the day of departure approaches, airfares tend to increase in price, as the airlines manage their inventory ensuring they have sufficient seats remaining for the price-insensitive, time-sensitive business traveller.
For retailers, Christmas day is the day of departure. And as that day approaches, shoppers who haven’t completed their Christmas shopping become increasingly price-insensitive and time-sensitive. Like an airline, retailers’ prices can likewise reflect this pattern of demand: the best prices are available during November, but as Christmas approaches, prices are slowly increased.
This strategy also allows you to be price-competitive when it counts, with all those overseas online retailers who have been eating into your margins all year. And as Christmas approaches, their window of opportunity to deliver before Christmas gets more and more tenuous.
Bundling can also play a useful role in the lead-up to Christmas. Put some complimentary products together into a bundle or package, offering them at a discount on the sum of the price, but make sure the products are available individually to make the bundle attractive.
Finally, focus on the in-store experience. While you’re competitive on price, and you’ve got customers in your store (and not online), give customers an in-store experience they will want to come back to. Scott Kilmartin, who runs a shop call Haul in North Fitzroy in Melbourne, has just given his store a new look ahead of Christmas. In fact, why not give them an offer that brings them back to the store in during the back-end of January or early February (which is probably going to be a very tough period for retailers)?
As we all know, buying paint from a hardware store goes something like this:
Customer: Hi, how much is your interior flat latex paint in Bone White?
Store assistant: We have a medium quality, which is $16 a gallon, and premium, which is $22 a gallon. How many gallons would you like?
Customer: I'll take five gallons of the medium quality, please.
Store assistant: That will be $80 plus GST.
But if we were buying paint from an airline, it might sound something like this, as Alan H. Hess reported about 15 years ago:
Customer: Hi, how much is your paint?
Store assistant: Well, sir, that all depends.
Customer: Depends on what?
Store assistant: Actually, a lot of things.
Customer: How about giving me an average price?
Store assistant: Wow, that's too hard a question. The lowest price is $9 a gallon and we have 150 different prices up to $200 a gallon.
Customer: What's the difference in the paint?
Store assistant: Oh, there isn't any difference; it's all the same paint.
Customer: Well, then, I'd like some of that $9 paint.
Store assistant: Well, first I need to ask you a few questions. When do you intend to use it?
Customer: I want to paint tomorrow, on my day off.
Store assistant: Sir, the paint for tomorrow is the $200 paint.
Customer: What? When would I have to paint in order to get the $9 version?
Store assistant: That would be in three weeks, but you will also have to agree to start painting before Friday of that week and continue painting until at least Sunday.
Customer: You've got to be kidding!
Store assistant: Sir, we don't kid around here. Of course, I'll have to check to see if we have any of that paint available before I can sell it to you.
Customer: What do you mean check to see if you can sell it to me? You have shelves full of that stuff; I can see it right there.
Store assistant: Just because you can see it doesn't mean that we have it. It may be the same paint, but we sell only a certain number of gallons on any given week. Oh, and by the way, the price just went to $12.
Customer: You mean the price went up while we were talking?
Store assistant: Yes, sir. You see, we change prices and rules thousands of times a day, and since you haven't actually walked out of the store with your paint yet, we just decided to change. Unless you want the same thing to happen again, I would suggest that you get on with your purchase. How many gallons do you want?
Customer: I don't know exactly. Maybe five. Maybe I should buy six gallons just to make sure I have enough.
Store assistant: Oh, no, sir, you can't do that. If you buy the paint and then don't use it, you will be liable for penalties and possible confiscation of the paint you already have.
Store assistant: That's right. We can sell you enough paint to do your kitchen, bathroom, hall, and north bedroom, but if you stop painting before you do the bedroom, you will violation of our tariffs.
Customer: But what does it matter to you whether I use all the paint? I already paid for it!
Store assistant: Sir, there's no point in getting upset; that's just the way it is. We make plans upon the idea that you will use all the paint, and when you don't, it just causes us all kinds of problems.
Customer: This is crazy! I suppose something terrible will happen if I don't keep painting until after Saturday night!
Store assistant: Yes, sir, it will.
Customer: Well, that does it! I'm going somewhere else to buy my paint.
Store assistant: That won't do you any good, sir. We all have the same rules.
– Alan H. Hess. Originally published in Travel Weekly, October 1998.