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The Container Store Vendor Relations Philosophy

We continue our series sharing summaries of principles The Container Store follows to achieve its long-lasting success. These principles are detailed in the book, UNCONTAINABLE, written by Kip Tindell (co-founder, ceo and chairman, The Container Store).

The Container Store Vendor Relations Philosophy


Kip Tindell gives credit to the strong vendor relationships The Container Store has developed as a major reason the company has thrived for three decades.

In the early days of the company, The Container Store worked with other mom and pop shops. These small vendors were accustomed to big box retailers making demands and dictating how the vendor/retailer relationship would work. Kip recalls how these small vendors were astonished when The Container Store took a genuine interest in their success.

The Container Store takes the time to understand the needs of it vendors and works directly with them to form a mutually beneficial relationship.

The Elfa closet shelving system is the best-selling product at The Container Store. It’s a product Kip recalls as being very challenging to sell because it’s difficult to understand how to use it. However, once you learn how to use it, it becomes a simply elegant way to organize a closet. Other retailers refused to sell the Elfa product because it would require too much employee training. The Container Store didn’t shy away from the employee training needed and embraced the Elfa product to the degree that it is by far its most popular product.

The Elfa brand and business would never have been realized if The Container Store didn’t develop a strong vendor/retailer relationship. This strong relationship resulted in Elfa being purchased by The Container Store in 1999.

Most of the products sold in The Container Store are either proprietary or exclusive. This truly requires a strong vendor/retailer relationship where The Container Store needs to understand how these vendors define success so that everyone wins.

With its runaway success, The Container Store saw lots of competitors trying to mimic it business. Local, regional and national chains have all tried to replicate The Container Store business model. None have been able to find the same success and most of these competitors have ceased to exist.

Why didn’t these competitors successfully knockoff The Container Store?

Kip Tindell rightfully believes, “You can copy a company two-dimensionally, but you can’t copy its heart and soul. That, to me, is the key. No one wants to build a business that’s so hiring- and training- and people-intensive. That’s usually the last thing people want to deal with in business.

The Container Store posting series:

  • Hiring (Oct. 13)
  • Training (Oct. 14)
  • Selling (Oct. 15)
  • Leadership (Oct. 20)
  • Vendor Relations (Oct. 21)
  • Retailing (Oct. 22)
  • Manifesto (Oct. 23)
  • We continue our series sharing summaries of principles The Container Store follows to achieve its long-lasting success. These principles are detailed in the book, UNCONTAINABLE, written by Kip Tindell (co-founder, ceo and chairman, The Container Store).

    The Container Store Leadership Philosophy

    uncontainable_150The company culture at The Container Store is based upon communicating everything with everyone. Employees, according to Kip Tindell, feel included when everything is communicated with them. Kip delivers the same updates to the company’s board of directors as he does to employees. The only topic that’s off limits are salaries, everything else is discussable.

    Kip compares a business to a football team. Players on the football team need to know the score and need to know what the other players are doing, why they are doing it and where they are doing it. If one player doesn’t know what the other players are doing, a football team is sure to lose.

    Same goes for a business and at The Container Store, the leadership mindset is one of sharing as much information as possible to all levels of employees. Sales numbers and goals are shared every day with all employees for their store and for other stores in the region.

    Melissa Reiff (president, The Container Store) sums up the importance of communication to employees this way, “We must practice consistent, reliable, predictable, effective, thoughtful, compassionate, and even, yes, courteous communication every single day to successfully sustain, develop, and grow our business.”

    Instead of operating on a “need to know” basis, The Container Store follows a “must know” communication philosophy with employees. The company knows its employees will benefit from having more information because it will help them to do a better job, become a better employee and lead The Container Store to future success.

    The Container Store posting series:

  • Hiring (Oct. 13)
  • Training (Oct. 14)
  • Selling (Oct. 15)
  • Leadership (Oct. 20)
  • Vendor Relations (Oct. 21)
  • Retailing (Oct. 22)
  • Manifesto (Oct. 23)
  • We continue our series sharing summaries of principles The Container Store follows to achieve its long-lasting success. These principles are detailed in the book, UNCONTAINABLE, written by Kip Tindell (co-founder, ceo and chairman, The Container Store).

    The Container Store Selling Philosophy

    At The Container Store, we don’t immediately try to sell something to a customer; we can’t, because we don’t know enough about her yet. We simply start a conversation first, to open the door a bit, and earn her trust so we can begin exploring how to help her.” – Kip Tindell, The Container Store

    uncontainable_150The selling philosophy at The Container Store is known inside the company as “Man in the Desert Selling.” This sales approach involves uncovering customer needs and they use an analogy of a man in the desert to explain it.

    A “Man in the Desert” obviously needs water. But that’s not all he needs. Most retailers stop with solving the obvious customer need. Just like a Man in the Desert needs things beyond water like, shade, shoes, sunglasses, clothing, etc., customers have other needs than their obvious need. The Container Store trains its employees to uncover unmet and unknown customer needs.

    The Container Store employees are trained to (a) make an Approach, (b) establish a Connection and (c) close the Sale.

    As the earlier quote from Kip Tindell says, employees at The Container Store open the door to a potential sale by initiating a conversation with a customer. Instead of using throwaway lines like, “Can I help you?” employees are taught to use an Approach that is more conversational. Such as, “That’s a nice coat you have on.” Or, employees will see a customer holding a product and react by saying, “Let’s take this out of the box and I’ll show you how it works.”

    After the Approach, employees make a Connection by asking helpful questions, such as: What space needs organizing in your house? How big is the space? Who in the family uses the space?

    According to Kip Tindell, “… the Sale comes when we devise a solution that makes the customer excited about conquering a problem in a way she probably never would have imagined on her own (after all, she’s not the storage and organization expert—we are).”

    The Container Store posting series:

  • Hiring (Oct. 13)
  • Training (Oct. 14)
  • Selling (Oct. 15)
  • Leadership (Oct. 20)
  • Vendor Relations (Oct. 21)
  • Retailing (Oct. 22)
  • Manifesto (Oct. 23)
  • We continue our series sharing summaries of principles The Container Store follows to achieve its long-lasting success. These principles are detailed in the book, UNCONTAINABLE, written by Kip Tindell (co-founder, ceo and chairman, The Container Store).

    The Container Store Employee Training Philosophy

    uncontainable_150The Container Store trusts its employees to make meaningful connections with customers and to share their organizational expertise at every opportunity with customers. This trust comes from knowing they’ve hired great employees and trained them well.

    Astonishingly, full-time employees at The Container Store receive close to 300 hours of paid training in their first year. Read that again… nearly 300 hours of paid training. Not 30 hours, but 300 hours. Part-time employees get almost 200 hours of training and no employee gets put on the sales floor without first receiving 40 hours of training.

    That’s a major commitment to training. A commitment very few retailers have the courage to do.

    The Container Store training philosophy is about building an employee’s intuition muscles.

    Kip Tindell explains it this way, “We want our employees to use their intuition—their wonderful life experience—to anticipate the needs of our customers and to recommend the appropriate solutions.

    All the training employees receive prepares their mind to handle most any situation at the store level. It also prepares employees with product knowledge and organization expertise that helps them to explain to customers some of the complicated products The Container Store sells.

    As it relates to training employees, Kip Tindell stresses its importance by saying…

    One reason training is more important at The Container Store than at other retailers is because our motto is ‘We sell the hard stuff.’ We actually tell our buyers to look for products that are hard to sell. Why? Because we know other retailers won’t touch those products, giving us an exclusive and yet another reason for customers to shop with us.

    Let’s revisit the nearly 300 hours of training full-time employees receive at The Container Store. How can a retailer justify such an outrageous expense?

    For The Container Store, training employees so well results in a turnover rate of less than 10%, which saves the company millions of dollars in recruiting, interviewing, hiring and training people. And since they sell complicated products, vendors can trust employees at The Container Store to tell the story and purpose behind each of the products sold in the store.

    The Container Store posting series:

  • Hiring (Oct. 13)
  • Training (Oct. 14)
  • Selling (Oct. 15)
  • Leadership (Oct. 20)
  • Vendor Relations (Oct. 21)
  • Retailing (Oct. 22)
  • Manifesto (Oct. 23)
  • uncontainable_150One of the most successful retail businesses that grew from a single shop into a much loved and highly profitable multi-unit concept is The Container Store.

    The business began in 1978 by selling all sorts of boxes, bins and doodads to help people organize all their stuff. Today, they have grown to 60 locations all over the United States with revenues around $750 million.

    The Container Store is a classic category killer concept that has carved a niche in the retail world by following seven foundation principles. Kip Tindell, co-founder and ceo of The Container Store, has finally published a book detailing the principles behind the success of The Container Store.

    Over the next two weeks, the Brand Autopsy blog will be sharing summaries of each principle The Container Store follows to achieve its long-lasting success. We’ll address important retail business matters from hiring to training to leadership to vendor relations.

    Let’s start with The Container Store hiring philosophy…

    1 Great Person equals 3 Good People

    Finding great employees isn’t easy for any business. It helps to have the reputation The Container Store has to attract great employees. Many people want to work there, but less than 3.0% of the people who apply to become front-line employees at The Container Store get hired. Once hired, people rarely leave. The Container Store enjoys an unheard of store-level employee turnover rate of less than 10%.

    One of the long-standing hiring principles practiced by The Container Store is 1=3. As in, one great employee will do the work of three good people.

    The company is very selective in whom they choose to hire. They strive to hire only GREAT employees and they pay them well. The typical full-time frontline salesperson at the Container Store makes nearly $50,000 a year, that’s about double the industry average. Payroll as a percentage of sales at the store level is 11.5%. That’s high, much higher than most retailers would dare to do.

    Kip Tindell explains why paying employees more works…

    Our approach to payroll is easy to justify because we are convinced that our 1=3 approach really works. Our employee wins, because she is making far more than anyone else than another company is likely to pay her for that position. The Container Store wins, because it gets three times the productivity at only 50 to 100 percent more the cost. And the customer wins because they have this superb salesperson who actually cares about working in the store.”

    The Container Store believes it can pay its employees twice as much and still come out ahead because one great employee is as productive as three good employees.

    It’s not easy to get hired by The Container Store. The interview process is time-consuming. It begins with an online application. A phone interview is next for those that make the initial cut. From there, candidates are given a homework assignment and brought in for a group interview. Then, a variety of one-on-one personal interviews take place. This entire process takes time but The Container Stores takes this time in order to find GREAT employees.

    Hiring the right employees and paying them well is at the center of The Container Store’s success. Kip Tindell believes, “When you surround yourself with hugely talented, passionate, dedicated, and genuinely kind people, you will succeed in whatever you do—there’s no doubt in my mind about that.

    The Container Store posting series:

  • Hiring (Oct. 13)
  • Training (Oct. 14)
  • Selling (Oct. 15)
  • Leadership (Oct. 20)
  • Vendor Relations (Oct. 21)
  • Retailing (Oct. 22)
  • Manifesto (Oct. 23)
  • see update below…

    I know Starbucks Coffee is now just Starbucks.
    I know Starbucks sells more than just coffee.
    I know Starbucks wants to promote Fizzio.
    I know Starbucks wants to also promote Oprah Chai.

    What I don’t know is why a core product is missing from Starbucks new menu boards.


    Company culture and brand heritage still matter.

    Psst, Starbucks… by not saying you sell your core product of brewed coffee on the menu, it says something.

    UPDATE (Wed. Jun 26 @ 3:25pm eastern):
    I just heard from a reliable source inside Starbucks that an “error in the menu art” occurred and the omission of brewed coffee was “not deliberate.”

    Whoa! That’s a spendy error.

    New menu boards with “Brewed Coffee” options will be sent to all Fizzio stores, which include locations in Hawaii, Southern California, Arizona, New Mexico, Texas, Oklahoma, Louisiana, Mississippi, Alabama, Georgia, Florida, South Carolina, North Carolina, Virginia, Nevada and Utah.

    UPDATE (Thur. July 10 @ 4:30pm eastern):
    Here is the updated menu board that rightly lists BREWED COFFEE.


    Anatomy of a Starbucks Customer Experience Program


    Brand Autopsy Archeology Week continues…

    The blog archeologists dug deep to unearth a primitive post from before the Brand Autopsy blog existed.

    In December of 2003, I joined Paul Williams as guest bloggers for the Fast Company blog called FC NOW. At the time Paul was a customer care manager with Starbucks and I was the national marketing director for Whole Foods Market. We found the weeklong blogging experience to be not only fun but also invigorating. So fun and invigorating, that we started the Brand Autopsy blog the following week.


    (The FC NOW blog is long defunct but the posts remain buried deep in the Fast Company website. You can access my posts here and Paul’s posts here.)

    One of the Fast Company writers asked us to share how to create a great customer experience. In response, Paul and I blogged the following…

    first published on December 10, 2003

    Anatomy of a Starbucks Customer Experience Program

    The following story is real. It was implemented in the Summer of 2001 in all North American Starbucks stores and was widely credited [internally] as a hallmark customer interaction program.

    Here is the story of Blended Beverage BINGO as told by the two guys who created it:

    John Moore (JM): When I was a serving as the Field Marketing Integration Manager at Starbucks in 2001, I was asked to develop ideas for a store level incentive contest. On occasion, Starbucks will use incentive contests to help goose sales. In the past, all incentive contests have been sales-based. This incentive contest was to be implemented in the summer of 2001 and the goal was to ultimately drive sales of blended beverages (Frappuccinos). Knowing that creativity was needed to help solve for this, I called Paul to help me brainstorm ideas around how to create a dynamic incentive program.

    Paul Williams (PW): When John and I talked about this opportunity we kept mentioning how important sampling is to selling beverages. Sampling of products is encouraged at Starbucks and is a major reason why the company has been so successful. Our stores sample many times throughout the day and whenever a new product is launched, you can bet that Starbucks stores will be sampling it heavy.

    JM: I remembered seeing a report that estimated for every five samples we would sample to customers, it would stimulate a purchase — a conversion rate impressive for any retailer.

    PW: Customers will experience two types of sampling at Starbucks — passive sampling and active sampling. Passive sampling happens when customers help themselves to a sample of a product that is sitting on a table or near the main register. Active sampling occurs when a store partner (employee) serves a customer by physically handling them a sample and engaging them in a conversation. Active sampling is by far and away the best way to connect with customers and to drive sales of a product.

    JM: Right then we knew that we had to create an incentive contest that encouraged store partners to engage in active sampling.

    PW: As we were brainstorming, we started talking about how much fun we had playing timeless childhood board games like Candyland, LIFE, Connect Four, and Mousetrap. The kitschier the game, the better. We thought it would be great to connect with store partners by turning the incentive contest into a board game — like the ones we used to play as kids. I mentioned that I had recently played BINGO with some friends and that is where we had our EUREKA moment.

    JM: Paul suggested we model the incentive contest around BINGO. We wouldn’t use numbers. Instead, we would replace the numbers with a fun activity that would ask a store partner to interact with a customer all the while sampling them a beverage.

    PW: For example, we created activities like: Sample a Mocha Frappuccino to a customer working on a laptop; sample Tazoberry to a customer wearing a red article of clothing; teach a customer to order their favorite blended beverage using the “Starbucks drink language.” For the center squares, we got really wacky with one that asked store partners to get five customers and two partners to form a “conga” line in-store.


    JM: Not only was this program fun for store partners, it was fun for customers. I remember one store sent us their completed BINGO card and a laminated poster that featured photos of their store partners and customers doing all 25 activities on the BINGO card.
    PW: The end result was sales of blended beverages increased and the morale of store partners increased as well. Just last week, I was at a meeting where someone mentioned this tactic from 2 years ago! Time and time again, Blended Beverage BINGO has been mentioned as one of the most successful ways we helped partners deliver great customer experiences.
    Now that you know the story, let’s dig a little deeper to better understand how the tactic of Blended Beverage BINGO created great customer experiences and ultimately drove sales.

    First, it created a fun, interesting way to reward our customers and store partners all the while enhancing the Starbucks culture.

    Second, BINGO was all about improving the customer service experience. This program encouraged meaningful interaction between store partners and their customers — it created dialogue, offered our customers a special treat and delight, and provided store partners the chance to step out from behind the bar and interact with their customers.

    Third, the BINGO game was about community. Stores had to make these activities relevant to their customers on that particular day. Partners needed to think about who would fit the requirements for the sampling activity and then interact with them.

    And fourth, the BINGO game was an innovative way to enhance sales and drive profit. By making sampling fun and top-of-mind for store partners, Starbucks was able to drive incremental sales and profit.

    Creating Category Intrigue Builds Brand Intrigue


    Brand Autopsy Archeology Week continues…

    On December 29, 2003 I wrote a post sharing a “hugely profound and evocative branding statement.”

    “A leading brand should promote the category, not the brand.”

    That statement is from the book, The 22 Immutable Laws of Branding by Al & Laura Ries. I riffed off this smart branding law in my book, TRIBAL KNOWLEDGE, and explained how Starbucks followed this law to become a leading brand. That riff from my book is below. Enjoy.

    first published in September 2006

    Creating Category Intrigue Builds Brand Intrigue

    book-tribal-knowlegeStarbucks did not create the specialty coffee category in the United States. But by 1996 Starbucks clearly emerged as the leading specialty coffee retailer. And it established this leadership position not by creating interest in the Starbucks brand, but rather by creating intrigue with the specialty coffee category.

    It sounds counterintuitive to promote the category before the brand but, as marketing consultants Al and Laura Ries point out in The 22 Immutable Laws of Branding, “Customers don’t care about new brands, they care about new categories.” Customers looking to be part of the “new best thing” are looking for a totally new experience, not just a new product. In the ’80s and early ’90s the specialty coffee category was just that—totally new. But for customers to be attracted to the new experience, they had to know about it; for customers to appreciate the category’s leading brand, they first had to appreciate the category. Without widespread consumer acceptance of the specialty coffee category, there would be no Starbucks brand to promote.

    We can laugh now, but twenty years ago the specialty coffee category was virtually unknown beyond a few coffee connoisseurs. Most of us had never sipped a cappuccino (much less pronounced it) or savored the rich, bold flavor of a single-origin coffee like Sumatra. Most of us drank canned coffee and we liked it (okay, at least we tolerated it).

    Before Starbucks could get customers to appreciate and admire its unique brand of coffee, it had to educate them to first appreciate and admire the specialty coffee category. So Starbucks set forth on its mission to educate customers on 1) what the specialty coffee category is, 2) what specialty coffee does, and 3) what specialty coffee aspires to be.

    Starbucks promoted what the specialty coffee category is through teaching customers the appreciable differences between canned coffee and specialty coffee. The defining difference, shown especially in early marketing materials and employee training tools, is in the bean itself. Starbucks coffee uses only 100 percent high-quality arabica beans, while canned coffee uses inferior, lower-quality robusta beans. Arabica beans only grow at higher elevations and flourish in the shade. Because they’re grown higher, they take longer to grow, which partly accounts for their full flavor. Arabica beans can be dark-roasted to bring out an array of fuller flavors. Robusta beans, on the other hand, can grow in low elevations in full sunlight. Partly because robusta coffee trees grow quickly, they produce uninteresting, milder tasting coffee than do arabica beans. Plus, robusta beans can’t be dark-roasted without becoming burnt and extremely bitter tasting. Fast-growing beans roasted lightly means that costs can be maximized but at the expense of flavor—and maximizing costs (not flavor) is what the canned coffee companies do best.

    The specialty coffee category is all about arabica beans. While coffee brewed with arabica beans cost more, the payoff is all in the taste. Starbucks could educate its customers about the differences of their coffees, but only through taste could the customers really ever begin to appreciate specialty coffee and what it could do.

    Starbucks promoted what specialty coffee does by having customers taste the difference through sampling. One sip of a freshly brewed cup of Arabian Mocha Sanani and customers immediately knew that this coffee was different from what they drank out of a can—this was coffee they actually liked. And after sipping the slightly sweet, roasted nuttiness from a handcrafted caffé latte, customers knew this was something they wanted to experience again and again.

    Starbucks showed its customers that coffee could be good, downright enjoyable. It promoted that specialty coffee aspires to be the uncommonly good “everyday coffee.” Yes, its cappuccinos and lattes could be viewed as occasional treats, but it is the dark-roasted brew—the “regular” coffee—that could and should kick-start any morning and cap-off any evening.

    Starbucks shared its pride in its product with customers willing to learn about the specialty coffee category. By promoting the category and creating customer preference for higher-quality, better-tasting coffee, Starbucks became the recognized category leader. After all, a business is not defined by its brand, it’s defined by the “category” company it keeps.

    Leading Questions…

  • What leadership role could (and should) your company play in promoting the category it does business in?
  • What activities might your business do to build greater customer-appreciation through education?
  • source: TRIBAL KNOWLEDGE: Business Wisdom Brewed from the Grounds of Starbucks Corporate Culture (2006)

    Developing Enthusiastically Satisfied Customers


    Brand Autopsy Archeology Week continues…

    A hallmark of the Brand Autopsy blog has been taking offbeat sources and connecting the dots back to business. In March of 2004 I connected the dots between the business practices of drug dealers to activities we in the legitimate game of business strive to do well.

    My seven-part “Street Corner Selling Curriculum” series of posts were based off of Bruce Jacob’s classic book, DEALING CRACK, which shared field research he had done to better understand the ins and outs of selling crack cocaine.

    This particular post shares quotes from drug dealers on how they develop enthusiastically satisfied customers.

    first published on March 3, 2004

    Today’s topic is:

    Developing Enthusiastically Satisfied Customers

    Businesses that focus on cultivating enthusiastically satisfied customers will typically generate a loyal customer base that will gladly refer that business to their friends and family. Drug dealers must also develop enthusiastically satisfied customers because nearly all of their sales growth is tied directly to customer referrals.

    Bruce Jacobs furthers this thought in his book, Dealing Crack.

    In the world of illicit street drugs, the mythic importance of a good connection cannot be overstated. Most people involved in the generic process of purchasing want the most and best product for the least amount of money, and crack buyers evaluate dealers by seeking out those who are perceived to offer the best deal.

    A number of sellers attempted to target their market strategies accordingly. Selling the fattest stones, offering more product for the money than was customary, and giving credit were all geared to entice customers to seek them and them only.

    Read these smart street-level quotes on how drug dealers develop enthusiastically satisfied customers:

    Bo Joe“The bigger ones [rocks] you serve, the more customers you get. You don’t gotta worry about no one else getting’ the sale because they [users] want you.”

    Ice-D“You give’em more than what you should because they look at their competitors and know that ain’t what so and so gave me [last time].”

    Deuce Low“Everybody try to keep they own clientele. Homie spoiled a customer so much last night, he don’t wanna deal with me – only him.”

    K-Rock“Providing fat stones may hook customers into buying from a particular seller, but smaller quantities – provided sometimes at reduced cost or free of charge – keeps the addiction going. Cultivation is arguably most effective (and most appreciated) when users are at their height of desperation, In the twilight of a binge, for example, even the most meager form of generosity can look colossal and reflect positively on the dealer who is ‘compassionate’ enough to offer a free or cut-rate nugget.”

    K-Rock“When a customer’s geekin’ … I’ll break off some pieces like give’em a fifteen for a ten, or a ten for a five, or just break off like two and three dollar pieces. I kinda feel guilty – know that they got kids. So I don’t be taxin’ like that. You’re gonna lose money, but you’re gonna keep your clientele. You know they get paid at the first of the month, and they gonna keep spendin’ with me [because I did that for them]. I’m true to the smokers. That why my clientele be so high.”

    Street Corner Selling Curriculum:
    Lesson #1: Customer Acquisition
    Lesson #2: Ten Minute Rule
    Lesson #3: Procurement
    Lesson #4: Merchandising
    Lesson #5: Angel Customers and Demon Customers
    Lesson #6: Developing Enthusiastically Satisfied Customers (pt. 1)
    Lesson #7: Developing Enthusiastically Satisfied Customers (pt. 2)

    Earning the Right to Raise Prices


    There are two kinds of companies — those that work to raise prices and those that work to lower them.” — Jeff Bezos

    Jeff Bezos is right, there are two kinds of companies: those that find ways to raise prices and those that work to lower prices. Both ways can fuel success but many times businesses look at raising prices as a last resort to drive sales. However, it’s probably smarter to follow the path of raising prices to find long-lasting year-over-year sales growth.

    As marketers we know there are three and ONLY three strategies to drive sales: (1) Get New Customers to Buy, (2) Get Current Customers to Buy More, More Often, and (3) Raise Prices.

    Getting new customers to buy is all about strategies involving newness. We’re talking about introducing new products, entering new markets, launching new advertising campaigns, etc. to gain new customers.

    Getting current customers to buy more, more often involves ways to capitalize on the visitation and shopping habits of the customers you already have. Businesses can do this through add-on sales, upsell tactics, prompting visits at a different daypart, etc.

    Raising prices is just that, raising the prices on the goods/services you sell.

    When was the last time you raised your prices?

    If it’s been more than two years, you’re falling behind. Payroll taxes have certainly increased in that time. Most likely the benefits you offer employees have also increased. Not to mention cost of goods sold is sure to have gone up. But your prices haven’t. That means your profit margins are shrinking. (Ouch.)

    If it’s been more than five years since you raised your prices then good luck having your customers adjust to higher prices when they’ve become trained to accept a lower price.

    Let me be clear, it’s not easy to raise your prices. It’s hard work. Not every company can do it. You have to first earn the right to raise your prices before you can do it.

    Earning such a right means you must do some (or all) of the following:

    • Sell a unique product/service
    • Deliver excellent customer service
    • Maintain a market leadership position
    • Stand for a higher purpose (i.e. green business practices)

    On Monday, Netflix announced its first price increase in three years. New subscribers will be paying up to $2 more per month to stream movies and television shows. (According to Netflix, existing subscribers will continue to pay their current rate for a “generous time period.”)

    Netflix has earned the right to raise their prices because the company sells a unique product (original programming like House of Cards and Orange is the New Black) and has exclusive rights to lots of movies and television shows. Netflix also commands a significant leadership position over other video streaming companies.

    Chipotle recently said a price increase will go into effect later this year due to increasing food costs. Expect your Chipotle burrito to cost up to 10-cents more come fall. The last time Chipotle raised prices was three years ago… so yes, Chipotle was overdue for a price increase.

    However, Chipotle has earned the right to raise their prices because they sell a unique product, maintain a market leadership position, and stand for using organic and natural ingredients.

    Amazon has announced a price increase with its Amazon Prime service. Shocking, right? Amazon has built its business model following the strategy of working to lower prices, not raising prices, to drive sales. The next time a customer renews their Amazon Prime membership, they will be paying $99, up from the long-standing $79 yearly fee.

    In many ways, Amazon has earned the right to raise its yearly Prime membership fee. It’s a highly unique service that began by giving customer free two-day shipping and now gives customers to ability to stream movies and television shows for free and to borrow Kindle books at no cost.

    Starbucks is currently wrestling with raising prices to offset behind-the-scenes expenses associated with rising wholesale milk and green coffee prices. It’s been a few years since Starbucks last raised prices but Starbucks has routinely raised its prices even when not pressured but outside forces. Like Chipotle and Amazon, Starbucks has earned the right to raise prices through serving unique products, delivering great customer service and standing for a higher purpose.

    How about your business?

    What are you doing to earn the right to raise your prices? And, how would your customer react to a price increase?

    My advice is to first earn the right to raise your prices and second, routinely your prices before you are pressured to do so because of shrinking profit margins.

    Every year or two, increase your prices by 3% to 4%. If you sell a unique product/service, deliver excellent customer service, maintain a market leadership position, and/or stand for a higher purpose your customers will hardly blink an eye when you charge them a little more.

    If you wait five years before raising prices and you hit your customers with an unexpected 18% to 20% price increase, then expect a backlash resulting in fewer customers and lower revenue.

    Expect a far greater backlash if you attempt to raise your prices without first earning the right to do so. Pricing power is a privilege that has to be earned, dig?

    Did you like this post?

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