Dave Randolph,
President, Prairie Trail Software
The latest fear in the financial market is deflation. While some discount it as the future of the stock market, deflation is occurring right now in other markets.
The electronics market has been living with deflation for decades. Every year you can buy a newer model with more features or a lower priceÑcomputers have been deflating ever since the 1950s.
But now "standard" retailers are having to deal with deflation. Over the last year discount retailers such as WalMart, Costco, etc. have had increasing sales while traditional department stores, such as Sears, have been losing sales. The problem is due, partly, to the oversupply of retail space but also to the large change in the market.
Decreasing sales at main-line retailers point to a significant change in the consumer mindset. For a long time, consumers were buying NOW because the prices were going up. Today, consumers are delaying purchases as the prices are going down. (Aren't you going to wait for the auto rebates and the low interest rates before buying a car?)
So, what to do about it? As a business, there are only two ways to deal with deflation. If you are big enough, standardize and force expenses out of your distribution channel, and be able to drop your prices. If your business is smaller, then you are going to have to compete on something other than priceÑthe big guys will always beat you on price. The only way to compete is to provide something that the big-boxes can not.
For example, there are smaller computer retailers who compete with Best Buy and CompUSA. How? They provide what the big-boxes can't: personalized service, special requests, information about a product, how to use a product, or which product to actually purchase, etc. For a big-box to provide such services they would have to charge higher prices.
Smaller retailers can also provided "fantasy." No matter how strange someone's tastes are, one can't get romance at a big-box retailer. Seek out a niche where people have passions. Those passions provide a big edge.
Neiman Marcus has customers who are passionate about buying from them. It isn't just the merchandise, it is the total experience. The story is told about one woman who went into Neiman Marcus with the firm resolve just to try out some things. When Stanley Marcus saw her in a dress she was trying on, his comment was "RavishingÑbut it should be a little shorter." She bought the dress.
Talk to your current customers and ask them what they would be passionate about and try to provide that. Find out what information, about your products, your customers really need. How can their lives benefit from what you are offering? If you can get each customer to visit one more time every three months, problems of deflation would be much reduced.♦