I was watching a report last week on The Fox News Channel (yeah, I’m one of THEM) about the bowling industry in America– or rather, what USED to be the bowling industry in America. At one time, almost all of the bowling equipment sold in the US (balls, pins, machines, shoes, uniforms, bowling alley furniture, etc.) was made by either AMF or Brunswick.  But when NAFTA was passed in the 1990′s, the factories went to Mexico to take advantage of the cheap labor market.  Why?

Because American bowlers were demanding cheaper and cheaper gear, and it could not be produced in the States with our higher standard of living (and attending wage base).  So the Mexicans celebrated as they inherited hundreds of millions of dollars’ worth of factories, development, and expertise.  There were fiestas down south as plants closed up north, and several small US towns hat depended on AMF and Brunswick were decimated.

But now the Mexicans are singing the “Bye Bye Birdie” song because the manufacturers (still mostly owned by Americans) are moving their plants to someplace where the labor is even cheaper– yes, China.

I find it ironic as it can be that our friends to the south, who celebrated their big wins with NAFTA-inspired migrators like AMF and Brunswick are now in the same state of shock our workers were 16 years ago.

Why?  For the same damned reason as it was in the early 90′s– American bowlers want their goodies STILL cheaper.

I’m going to reap a lot of flak for what I am about to say, so before you hit me with your flame thrower, read the entire

Off-shore call center?

blog carefully.  I am a patron of Walmart.  I like Walmart.  They have been generally good for America, especially in the smaller towns were they set up shop.  But there is a downside to Walmart– and it is what I call the “Walmart mentality.”  It’s the mindset that cheaper is ALWAYS better, that somehow it has become an American right to have the best of all goods at the cheapest possible price.

The result?  Someone off shore makes a knock-off of  a high-quality US product (or, sometimes, a poor-quality one, as Detroit knows only too well) and sells it for 25% less than the US product, usually at Walmart (and similar discount chains– it’s not just a Walmart issue).  So what does the American manufacturer do?  Try to match prices and keep the quality up (sometimes an impossible task), so they either have to beat the bat snot out of their employees for concessions to stay “competitive” or they must move out of the country to where labor is cheap.

It began 50 years ago.  First shoes went offsore.  I grew up in a small town in the Midwest that had, among other things, a shoe factory, owned by the Brown Shoe Company.  I worked there one summer while in high school. At one time, it employed about 400 people, making shoes that Americans built, Americans wanted, and Americans wore.  Then someone– I don’t know who– maybe the Italians, maybe the Fillipinos, or Indonesians– began making equally good shoes (or better ones) at a lower price.  Brown tried to keep up by cost cutting, but it was not enough, and eventually Brown outsourced all its shoes to off-shore factories.  Today, Brown is still in business as an American company, but the shoes are not built here any more.  Because Americans wanted it cheaper, faster, cheaper.

Then television sets left the American landscape.  Do you remember when RCA, Magnavox, Philco, Emerson, Motorola and others were built here?  I do.  They are all built in Asia now.  And they are darned good sets too!  But again, we clamored for cheaper, faster, cheaper.  And we got it.

Steel mills followed soon thereafter.  Then cameras.  Then computers.

We demanded it cheaper, and we got it.   But at what price?

What does the future hold for us?  I have heard it said that information technology is the new steel mill for America, that we have a huge lead in that area and that we can leverage that for wealth.

But not for long.  We’ll lose that lead to cheaper, faster, cheaper soon too.

Gee whiz, I sound pessimistic on this, don’t I?  But have I missed it?  Am I wrong?

The English art critic and essayist John Ruskin said it so well over 100 years ago:

“It’s unwise to pay too much. But it’s worse to pay too little. When you pay too much, you lose a little money, that is all. When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do.

The common law of business balance prohibits paying a little and getting a lot. It can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better.

There is hardly anything in the world that someone can’t make a little worse and sell a little cheaper and people who consider price alone are this man’s lawful prey.”

Can product quality and superior salesmanship save the United States from its plunge down the world’s economic toilet? I hope so!  I’m betting on it!  But we have our work cut out for us!

Ally, Mickey and my Wife

Last week, the wife and I accompanied our daughter and son-in-law and our two grandchildren (Luke, 16 months, Alexis, 8 years) to Walt Disney World in Orlando, Florida for a vacation and birthday celebration (Alexis turned 8 while we were there).

Several observations about WDW:

1.  Florida is humid. Very humid. For me, one who is used to the dry desert heat, Florida was worse than a clam bake, with me as the clam. After walking only 50 yards, my shirt was soaked.  I wish Mr. D had decided to build his park near Phoenix—but then, it would have been only 5 hours away from Disney Land in the Los Angeles area, and that would have been a poor move from a business sense.

2. While much of the Disney magic is still evident, these hard economic times have hit Disney too. There were signs of delayed or cut-corner maintenance in our hotel and many of the waiting line areas did not have ventilation fans to cool off the patrons. (In Arizona, we use misters and fans to cool off people outdoors, but in the Florida humidity, misters would do no good whatsoever.)

3.  Certain parts of the older parks (Magic Kingdom, EPCOT) showed signs of wear, such as flaking paint, rust, cracks and the like.  On my last visit, in 2003, the park was pristine in every way.

Despite these small signs of economic stress, the staff— Disney calls them “cast members”— were true to form and exceptional in their friendliness and helpfulness, always exhibiting a cheerful attitude to all who came to them with questions or problems.  They are truly the best in the world at what they do.

And the Disney Magic is still there in huge quantities! For example, in the Magic Kingdom, the evening “Electric Parade” has now become the “SpectroMagic Parade”, but it still features Disney characters in LED-lit costumes and floats and my grandchildren were spellbound by it, as I was!

For Ally’s birthday, we ate at Chef Mickey’s (in the Contemporary Resort) and we were a little late due to bus transfers. As we were seated, our waiter came by and said, “Alexis, I have been expecting you! Happy birthday and welcome to Chef Mickey’s!” She was  stunned! Then, as we were nearing the end of dinner, we were visited by none other than Pluto, Donald Duck, Minnie Mouse, and, of course, the most powerful mouse in the world, Master Mickey himself! Alexis was in shock to meet them, as was my wife (a huge Mickey fan). Minnie Mouse even kissed me on the cheek. I have not washed it since.

One night, we took Ally to Cinderella’s Castle for dinner. Part of the package included a picture of her with Cinderella, with which she was awesomely impressed, but she did not know that we had dinner reservations. She had said all day that she wished she could eat there. Well, the photos are taken in a large anteroom before you ascend the stairs to the dining hall, and every few minutes, a royal page would enter the room with an official strut and utter in a loud voice, “Lords and Ladies of the castle, Cinderella requests the [NAME] party to be her guests at dinner. Princess [NAME] / Prince [NAME], will you accept?” We told Ally that we had to be invited by Cinderella to her dining table and she got a sad look. But a few minutes later, when the royal page announced our invitation to dinner, she could not believe her ears and her eyes grew as large as saucers!  She ran over to Cinderella and asked, “Could you eat at our table tonight?” Cinderella, carefully coached on how to handle all possible interactions, smiled with the grace of a true princess and said in fairy-tale voice, “I’d love to, my dear, but tonight I am dining with Prince Charming.” It worked.

I stopped by one of the caricature artists at the Animal Kingdom one day and thumbed through his book of backgrounds, looking for a telescope, but found none.  I said, “Can you do a sketch with a telescope in it?” He replied that he could, and he produced the sketch you see here. I have already scanned it and put it into my personal business card and have asked my astronomy club newsletter editor to use it instead of the “Uncle Sam” graphic we have used for the last few years for the President’s Corner section.

On the last night at Disney, Ally lost a tooth! Imagine her joy and surprise when she awoke the next morning to find a certificate signed by Tinkerbell herself at the foot of her bed, with fairy dust (glitter) running on the floor all the way to the door!

It never ceases to amaze me that a company has built a $100 billion dollar-plus empire out of a vermin-carrying rodent! But that is the Disney Magic.

I was privileged in 2003 to sit in on a seminar where the Disney HR department trainers taught us how they prepare the cast members for their jobs. Each cast member, be it a lowly janitor (the most trained cast member they have, by the way, since that is the one position most folks turn to for directions or help!) or the girl who dons the Minnie Mouse costume is given at least two weeks of training and orientation using what they call the Disney Compass.

The Disney Compass is a concept every business could use. Imagine a compass, like you use for finding directions. It has four main points—N (north), W (west), S (south) and E (east). In the Disney training system, these four points stand for cardinal virtues of what the Walt Disney Company stands for.

N is Needs. Everyone, they are taught, has needs. You have needs.  I have needs.  All God’s children got needs.  I need food, and water, and air, and shelter, and transportation, and so on. So do you.

W is Wants. Everyone also has wants. You have wants, I have wants, all God’s children got wants. I need food. I may have to settle for hamburger, but I might want prime rib. I need clothing. I may settle for a suit from J. C. Penney, but I might really want a $5,000 Armani original. I need a car. I may settle for a Honda Civic, but want a BMW. The list goes on.

What separates a need from a want, asks the Disney trainer? Money. We turn our wants into reality by trading enough money to satisfy them.

For the average Disney visitor (family of four) that means about $3,500 on a typical visit (counting transportation, hotel on the Park, meals, and extras). Disney also knows that their average patron comes back every 3.7 years (or so— the numbers may have changed a little since 2003).

So how does Disney get people to come back every 3.7 years and drop $3,500 every time they do?

By going to the S and E compass points.

S is Stereotypes. Disney does a superb job of inspiring their cast members that Disney Parks are not the stereotypical theme park. They are in a league all their own. I have to agree. I have been to many theme parks over the years, and none of them hold a candle to Disney. Disney is cleaner, Disney is more attuned to detail (witness the  hundreds of “hidden Mickey’s” in every Disney park, for example), Disney people are more pleasant to deal with (even in unpleasant situations) than any other park I have ever been to. I was told by the Disney trainer that led our seminar that Walt Disney World proudly has 17,000 janitors on the payroll. We all gasped, and then he told us that EVERY cast member is expected to pick up any loose trash he or she sees as they walk about their daily duties, and that even included the Disney CEO at that time, Michael Eisner. Disney tells their cast members that they cannot build repeat business at $3,500 a pop on a “me-too” park experience, and they really succeed at that!

Finally, E is the most important part of the compass. It stands for Emotions. Disney teaches their cast members that if they don’t touch the emotions of every guest that enters the park every day, they will not build the bond that brings them back every 3 or 4 years.

How good are they at touching the emotions of their guests? Let me give you an example.

We took our daughters (Sara, the one who went with us this trip, and her younger sister Julia) to Disney World in 1987 when Sara was 11. (At that time, Disney only had two parks: The Magic Kingdom, and EPCOT. Now they have five!) At that time, the Magic Kingdom had the Electric Parade at night with its cute (if not eventually annoying) little parade theme music. About halfway through the parade, as Pete’s Dragon was passing us, I felt a tug on my arm. It was Sara and she looked up at me and said, “Daddy, when we go home tonight, can we stop at the gift shop and get the tape with this music on it?” I said, “Sure, sweetheart,” and we did—at $19.95 for a cassette tape, at a time when you could get a Michael Jackson tape for $9.95! (We listened to that tape all the way home from Orlando to central Missouri…)

Now fast forward the film to 2002 and Sara’s wedding. When she had the wedding party enter the reception hall for the reception, she had the DJ play— well, would you believe she had the DJ play that Electric Parade theme song?

Think about it!  Disney had so ingrained itself into my little girl’s emotions at age 11 that on the happiest day of her life as a young adult woman, she played their music to celebrate her wedding. Wow!!!

What if every business did a stunning job of touching every customer’s emotions that way?

Better yet, what if your business strove to live by the Disney Compass? What could that do for your sales and success?

We married for better or worse. I got the better part, she got the worse. But we still love each other and cannot imagine life without each other, especially now as the grand kids start growing up.

So for our anniversary, we spent a quiet day in Jerome, Arizona, a

My Bride of 37 Years at Jerome, Arizona

remarkable little town built on the side of a steep mountain.  Jerome is sometimes called “the vertical city” and when you visit you can see why!

It was started in the 1880′s as a copper mining town and did quite well until after World War II, when the mine shut down. In its first year of operation, it gave its investors $55 million in earnings– at a time when a dollar then would buy about $30 or more in today’s currency.

The town is rich in history, but to my displeasure, it is now mostly a collection of artist shops (selling everything from very good works to trinkets disguised as art), wine shops and touristy klatsches.

There are some good restaurants in town, and some world class ice cream! Also, the small museum in the heart of town was worth the $2 admission price.

All in all, a nice way to spend a lazy August day, a mile high and 20 degrees cooler than the Valley of the Sun!

The premise of the article was that the publishers solicited advice from various contractors (painters, plumbers, electricians, flooring specialists, cabinet makers, etc.) to help homeowners haggle with contractors so they can “cut costs, not corners.”

The first two “experts” advised customers to get multiple bids (at least three) so you’ll know the market price range for the job. And let them all know you’re getting three (or 10) bids, to keep them all honest.

First, what guarantee do you have if you get three bids that you’ll have anything even close to the “market price range for the job?” You’ll just have the range of the three people you talked to, and they may (or may not) be good contractors and therefore their bids may (or may not) reflect the “market price range for the job.”

One expert had some good advice-draw up your specs before getting bids and have the bidders bid on the same specs rather than let each contractor offer their own solution. (I must point out they were not saying the homeowner should design the job themselves, but merely specify things like color, tiles, hardware. To that I would add energy efficiency and sound ratings.) But then he advised homeowners to get itemized bids and compare the costs apples to apples. In other words, cherry pick the contractor!

Unless you are conversant with job bidding, how would you know that the red tiles quoted by flooring contractor A were an apples to apples equal of the red ones bid by contractor D? You wouldn’t know, so this is dumb advice too.

Two more experts suggested homeowners dangle incentives before their bidders. One suggested the homeowner should offer to pay the subs and suppliers directly (which lets the homeowner know your exact costs, doesn’t it?). Of course, implied in this is that you’re screwing the contractor out of his markup on materials and subs. Do that enough, Mr. Dealer, and you will become a bankruptcy statistic!

Another expert suggested you have the contractor lean on his subs for price concessions. That might work in a bazaar in Timbuktu. I don’t think it has much merit for America right now.

Another bit of advice said to play your hand and then shut up. For example, if the contractor says the job will take $9,000, come back with “My budget is $7,000,” and then clam up. The advice from this sage is “he who speaks first loses.”

Bull! The best way to sink that ship is wait a few seconds and then say, “Mr. Jones, my mother taught me when I was a lad that silence was consent. Was she telling me the truth?”

I think any contractor who puts a price on the table without first establishing the homeowner’s budget is a fool anyway and deserves to be handed the “silent treatment.”

And don’t tell me a contractor cannot get the customer to divulge his budget. I did it all the time. If he does a great job of establishing trust and rapport, it is just as easy to ask, “Have you set a budget for this project?” as to not ask and then guess and end up priced out of the ballpark. Most customers won’t have a budget, so you can work with them to set one.

It goes like this: “Well, can we work together for a minute to establish one? You see, I have literally thousands of combinations of units I can bring to this problem and the prices will vary a lot based on the combination. If I know what you are comfortable with, I have a better chance of finding a solution that will please you.” Most folks would be ok with that. Then, to set the budget, start off, “Let’s suppose we went top-grade all the way and the job came to $12,000. Would that be out of line?” The customer gasps, “Twelve thousand! Are you nuts?” You reply, “I am just looking for the ceiling. Obviously $12,000 is too much. Suppose the job came to $9,000. Would that be more acceptable?” And so on until the customer indicates the range you have found is workable. (A variant is to cite monthly payments instead of the lump sum.)

Now here’s the catch. What if their range is well below what you need to charge for the job? You then say, “There may be a problem. In my experience, solving the issues you want to address cannot be done for that low a number. Are you willing to give up some of your requirements for me to meet your budget, or do you want to reconsider your budget and meet all of your requirements?”

Perhaps the best advice of the column was the last one: “Choose the guy who’s best for the job and then talk budget.” I can work with that and create a great solution (most of the time) for the money the customer wants to spend.

In the months ahead, I will be placing some sales training materials in my web-site’s “Shop” that you may want to consider and purchase. Check back from time to time to see what new is on the shelf!

As he cheerfully did this, I struck up a conversation with the female barrista. She asked me if I wanted a cup to hold me over until I got home, and she had the most awesome smile as she said this! Her teeth glistened and her eyes twinkled joyously. I told her that I could wait until I got home, but thanked her anyway. Somehow, she caught a tiny non-verbal cue in my face and said, “Hmm, I just saw a moment of hesitation there. Did you know that when you buy two bags of coffee, you’re entitled to a free Tall?” That awesome smile again!

I chuckled and said, “Alright, give me a Tall decaf!” As she did, the Barrista grinding my coffee smiled and softly chuckled.

I told her that I teach sales and that her ability to pick up that little non-verbal was awesome!

If I were a contractor, I would have handed her my special contractor’s business card.  On the front would be my company name, logo, contact info, etc. but on the back is a simple statement: “I really am impressed with your sales skills. If ever you wish to change employers, please call me. I will always make room for talent like yours.”

The girl probably doesn’t know beans about air conditioning. She can be taught that.

But she has that special ability to read a customer that I find in only maybe 1 in 100 sales people today. She has a great future ahead of her!

I want to continue the blog I started last month when we looked at a hypothetical contractor who I named Kamikaze Ken.   (Click here to retrieve that blog post.)  In Part 1, I simulated a typical reaction to a recession market by having Kamikaze Ken cut his prices 10%, to discover that under those conditions, he would not survive the recession.

Now let’s run another scenario, using the simulation software I introduced in Part 1 (click here to download a free copy).  I’ll reset Kamikaze Ken’s pricing on row 20 to 0% and this time, simulate a drop in business- let’s say, a 30% drop in business.  (To do this, I type a minus 30 in the Volume column on line 20.)  At first glance, Kamikaze Ken loses $57,900.  So the question becomes, all things being equal, if his volume drops 30%, how much would his prices have to rise to net out $15,000 on the work he does get?  (That is, what offsets his drop in volume so he makes the same profit he did last year?)  The answer?  Only 14%.  That means he would have to sell a $5,000 job for $5,700.

That may seem like a tall order until you consider one of the factoids about the market:  on average, 24% of the people shop on price and on price alone (low bidder wins, period).  Another 17% shop on value (they’ll pay more to get what they is valuable to them).  The other 59% can go either way.  And research shows that they end up buying in the segment the sales person comes from.  If the sales rep is a price-driven person, they’ll buy on price; if the sales person promotes value, they’ll buy on value.

The long and short of it is that to some people the market is price-driven.  But to me, 17% plus 59% (or some 76% of it) is NOT!  Those are the people I want to sell to. And to do that, I need to know how to sell a strong value-proposition, one my customers want.  If Kamikaze Ken can figure that out, he can probably raise his prices 14% (or more), stop trying to sell to that 24% who wants low-ball prices all the time, and make as much as he did last year on 30% less work this year.

Kamikaze Ken could either offer the same old wagon full of bargain-basement junk he has been offering all these years (and try to get 14% more for it), or he could learn how to put together a power value-rich package and sell it for a higher price than he does now-perhaps 25% or 30% more, not just 14% more.  Most contractors know that 18 SEER equipment can fetch 25% to 40% more than 13 SEER equipment, yet most are afraid to  offer it lest they lose a job to a lowball competitor.

But let’s get really drastic for a moment.  What if this recession gets so deep that Kamikaze’s sales drop by 50%? Could he survive such a disaster?

By using the spreadsheet I reference above, when I set up the Volume input for -50%, with no other changes, Kamikaze ends up losing $106,500-this would surely bankrupt him.

But I can also simulate the effects of selling the top of the line and controlling costs and overhead.  If I enter +15%  in the Pricing input cell, -5% in the Costs cell (simulating better job design and less waste, since the spreadsheet already reduced direct costs when I reduced the volume), and reduce overhead by 21%, I can get Kamikaze back to where he was before the recession hit.  But cutting overhead by 21% is a huge job!  What if Kamikaze can only cut overhead 10%?

Then he ends up losing $13,500 instead of making $15,000. But who says that 15% is all the price increase Kamikaze could get away with?  Suppose he offers the best product he has to offer and can realize not only a gain in sales due to a gain in the costs of equipment, but also a gain in sales because he can sell a value-rich proposition for more margin dollars than a low-value package.  Suppose Kamikaze could get 22.5% more in sales due to a product shift and a sales practices shift?  Is such a jump possible?

Many dealers who have learned how to do just this tell me that it is not only possible, it is EASILY doable.

Ah, but can Kamikaze Ken learn how to sell like that?  THAT will be the topic of the next blog.

Stay tuned, fiscal fans!