Friday, August 12, 2011

Avoid Taking A Haircut, First Recognize The Real Problem

Chinese Proverb: A Problem Is An Opportunity In Disquise

Too often we confuse symptoms of a problem with the real problem. The owner of a successful upscale hair salon was confronted with a new discount chain hair salon which had recently opened directly across the street. The new competitor literally barraged the surrounding business and residential locale with direct mail, newspaper advertising, and couponing promoting $9.99 haircuts. The upscale salon owner immediately experienced an impact on her business. She decided to launch a counterattack.

She called in two marketing consultants for help. She asked each to submit a proposal on what to do including budgets. She made it clear to both that she had limited funds which had to be invested prudently. Soon both consultants submitted their plans.

One consultant suggested she needed to a) reduce her prices to compete; and b) invest her entire budget in direct mail, newspapers, and couponing to counter her competitor.

The other consultant suggested something completely different. He had noticed there was a large outdoor billboard available positioned directly between the two competitors. He suggested that this billboard be leased immediately. Nothing else was required. No direct mail, no newspaper ads, no coupons, and more importantly, no reduction in prices.

Curious about the second proposal, she called the consultant in for an explanation. "How is it possible that leasing just one billboard will solve my problem?" "It's simple", related the consultant, "I have done some quick personal research on the market, your clientele, and the clientele of your competitor. You are an upscale salon in a predominantly upscale market. Your loss of business is temporary. If you reduce your prices, coupon, heavily advertise, you are playing into your competitor's hands."

"I understand", the owner responded, "but what, then, will the billboard say?"

The consultant smiled and said, "It will say 'We Fix $9.99 Haircuts!'".

Needless to say which consultant won the business.

The moral of the story: Recognize the problem as an opportunity or risk taking a financial haircut.